I know there are a few posts about this already in regards to what tax breaks can be claimed on IP loans with redraw etc.
I'll give my situation.
I'm about to rent out my ppor, i had redraw on the loan on this. I've used the redraw to fix up another IP, as it was damaged in the floods. I've also used some for a new deposit on a new house that will be my PPOR.
I still have 10k redraw that i need to take out, to use within the next 6 weeks on repairs.
Once the repairs are done on the other IP, i will be refinancing it's loan, and my current PPOR's loan with a new bank.
So there might be a timeframe of 6 weeks where the loan for my current PPOR will be an IP with the "tainted" loan before i refinance.
Should i take out the remaining 10k i need before it turns into an IP, and work my deductions from the date it turned into an IP. Or should i not worry about the 6 weeks of repayments, and just start a fresh on deductions once i refinance, so it's all a fresh loan for the PPOR turning into IP?
I hope that makes sense!
Any help or advice appreciated,Thanks!
I'm not sure I really understand. I dont think it will make any difference at all when you draw the funds, because taxdeductibility of the interest is based on the purpose you borrowed the money for, not the asset the borrowings are secured against.
The $10k your drawing is for repairs for another rental right? So the costs you pay with that $10k will be tax deductible, as will the interest you pay on it, regardless of whether it's secured against your PPOR or a rental, or whether it happens before or after the refinance.
It's a bit of a headache for your accountant.. but I'm sure you already know all about that.
Also.. I'm not sure what you mean by "work my deductions from the date it turned into an IP" ?
"Work out" i should have written.
As in, the 6 weeks or thereabouts that it's being rented before i refinance, just not worry about claiming any interest deductions during that time. And start a fresh with the interest deductions when it's refinanced and potentially not seen as a tainted loan?
And yes, the 10k i will withdraw will be for repairs on another rental.
And yes, a headache for sure. It was all sweet until the one place got flood damage and i couldn't refinance until it was fixed, therefore i had to use redraw for a deposit!
Oh ok.. well admittedly:
$10k repairs x 7% interest x (6/52weeks) x marginal rates = not much
So if you didn't bother to claim the interest for that 6 week period it wouldn't make that much difference. But… The refinance is going to split the loan into it's different purposes right? So the balances of each purpose needs to be determined anyway, and part of that process is determining how much interest relates to each purpose. So in the process of the refinance you'll end up knowing how much interest is deductible against those repairs anyway.A multi-purpose loan can be a bit of a mess for someone to work out, but that said an extra drawing of $10k for a purpose that already exists in the loan isn't really going to make the job any more difficult.
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