Hi Guys,I have couple of questions in regards to negative gearing. I bought a propertyin 2007 for $200k, and paid $10k advance leaving $190k as my mortgage. I refinancedthe loan couple of times example, to $205k(2 years ago), then $210k (dec 2009) and now $230k (in march 2010).How should my negative gearing be calculated annually, should it be against the annual interestrepayment of the $200k original investment price or $230k refinanced price.If I decide to sell this investment property this year, would my capital gains be sell price – original price,or sell price – refinanced price.I am a newbie and can not make a decision about selling this property, which is a townhouse in liverpool,I am getting offers around $260k but want at least $275k so that I can pay off all my debt, however my realestateagent is very keen in getting the property sold for $260k, am not sure on what to do.Thanks guys,Vinny
Hi Vinny,
When you refinanced, what did you use the funds for? If it was related to the property (improvements, repairs etc) then you can claim that portion of interest. If not, then you can't.
If none of the refinanced funds were relted to the property, then your interest is only claimable on the original $190k borrowed.
Your capital gain would be calculated as (Selling price less associated costs) – (Cost price plus purchasing costs)
Selling costs include your agents fees, and purchasing costs include stamp duty, transfer costs etc.
Thanks Dan, I have used $20k of the funds to pay off personal loans and invested $20k on an offshore land purchase.
How should the interest be calculated on $190k, especially since the interest rate keeps changing. If I have been claiming tax on the full amount of $230k unknowngly , will it be questioned by the ATO? and how can one fix everything up.
I don't want to provide misleading info and want to pay my taxes fairly.
Thanks,
Vinny
Hi Vinny
The Bank or your Broker should have split the loan between the $190K deductible debt and the balance.
This way it would be fairly easy to apportion the interest as the Bank will charge the 2 accounts separately.
Yes claiming a deduction on the higher non dedcutible is cerainly likely to lead to a few ATO hard questions.
Get your Tax agent to put in a variation for the previous years after he has re-worked the elligible deductions.Capital Gains tax is based on the original purchase price (plus stamp duty minus any Capital Allowance already claimed) and has nothing to do with the refinanced amount.
Richard Taylor | Australia's leading private lender
Thanks Richard, I will speak to my bank today and have my loans split. I will submit these details to my tax agent.
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