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I have heard that if you redraw some funds from your current loan to pay the deposit on the new house, then it may be possible to claim deductions on the current balance plus redraw amount.
But apparently this applies only if you redraw enough to simply meet the 20% requirement to not pay mortgage insurance. If you redraw to pay the minimum deposit, then you may be able to argue with the ATO about which amount you can tax deduct.
Not clear on this myself yet, but that’s what I have been told.
I had a read through the ATO documentation on CGT, and it is so difficult to understand!
There are so many scenarios around how you may or may not be exempt from CGT.
I thought my case was fairly simple in that I bought a place, rented it out for 8 months, and then have lived in it for the last 3 years.
I thought that I would be exempt from CGT, but the ATO indicates that if the property at any time was used to produce income, then you need to pay CGT when you sell (at least partly). Determining how much CGT I will need to pay is quite difficult (or is it just me?).
Originally posted by Derek:In terms of continued tax deductions the balance of the loan on your unit is all the interest that you will be able to claim as any redrawn funds or equity used will be for new new home and as such these funds are not deductible.
Thanks for the reply. Wow, it looks like you’re saying that even if I redraw, I can only claim tax deductions on my current balance. So if I have $40K in the balance, and available redraw of $60K, I can only claim a deduction on the interest for $40K not $100K.
That pretty much makes it harder for me to justify keeping the unit.
I was hoping to be able to use the equity to buy the new house, and have a much lower loan amount for the new home, and claim the tax deductions on the equity loan amount.
I think I really need to consider selling now, but it’s not much of a seller’s market anymore.
