Investment Properties and Tax Deductions
The interest you pay on a loan to buy an investment property can be deducted from your income
This means that, if you borrow against your main residence to buy an investment property, the interest from that loan is tax-deductible. Conversely, if you borrow money against your investment property to purchase a car for personal use only, the interest will not be tax deductible.
The important thing to remember is if you redraw against an investment loan for personal use, you are essentially ‘watering down’ your tax-deductible interest. This is because the new draw-down is not for investment purposes. Even if the amount is paid back off of the loan, your tax-deductible interest amount has already been affected by the draw-down.
It is important to ensure that your investment loans are quarantined for investment purposes. Do not rely on or use it as a line of credit. A better strategy, if you only have investment-related debt and are looking to pay it off, is to place funds into an offset account and instead redraw those cash funds for personal use.
In this way, your loan will continue to be for investment purposes - you also need to make sure that your offset is actually a real offset, and not simply a redraw that has been disguised as such by bank lenders.
Thank you for reading!
Should you have any queries in regards to the above please contact our office on (03) 9728 1448
The TAS Team
3/653 Mountain Highway, Bayswater VIC 3153
Dorothea Farmakis (CPA)
Dorothea, our CPA Qualified Accountant (Registered Tax Agent), has over 25 years experience within international corporate firms in Accountancy, Funds Management and Asset Management for firms such as HSBC, P&O, Lend Lease and more.
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