Tax deductibility on interest

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kogepan517
Participant
@kogepan517
Join Date: 2009
Post Count: 7
June 25, 2013 - 12:46 pm
Hi
I would like to confirm my understanding on the issue of tax deductibility on interest expense.
* I bought my PPOR for $620,000 and the loan facility amount is $496,000 (80% of purchase price).
* I have $50,000 in my offset account at the moment. Hence outstanding loan balance is $446,000.
* If I turn my PPOR into IP tomorrow and draw down my $50,000 in the offset account to purchase new PPOR, interest on loan facility amounting to $496,000 will be tax deductible? I think so.
However
* If I decide to refinance the loan before I turn PPOR into IP (assuming market value of property is $800,000, then 80% of loan would be $640,000) and turn PPOR into IP as soon as refinance is completed, will I be able to claim interest deduction on $640,000 loan or $496,000 loan? I think $496,000.
Thanks
Rick
Richard Taylor
Participant
@qlds007
Join Date: 2003
Post Count: 12,024
June 25, 2013 - 1:29 pm
Hi Rick
No hate too say you will be limited to claiming the interest on the $496,000.
Refinancing and borrowing additional funds will not be an acceptable purpose for claiming a Tax deduction on the increased interest.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
June 25, 2013 - 11:13 pm
Hi Rick
Deductibility is determined by purpose.
At present, only the $496k would be deductible.
If you increased the loan to $640k – what would the additional $144k be used for? If it's used for a PPOR purchase – then it wouldn't be deductible. If it was used for IP purposes, it would be.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
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