Over the next 12 months it is anticipated that the government will start to raise interest rates and we will see a record number of property sales. With this in mind, many people are looking to have their current lending reviewed and revised to ensure they have the best product for their needs. In doing this, it is important to ensure that you maintain the integrity of the deductibility of your interest.
Frequently Asked Questions:
1.When is interest tax deductible on my investment property?
| When you can claim the interest | When you cannot claim the interest |
| Purchase a rental property | For the period you used the property for private purposes, even if it’s for a short period of time |
| Purchase a depreciating asset for the rental property (for example, a new air conditioner) | On the portion of the loan you use for private purposes (ie buying a boat or motor vehicle) when you originally took out the loan, or if you refinanced |
| Make repairs to the rental property | On a loan you used to buy a new home if you do not use the new home to produce income, even if you use your rental property as security for the loan |
| Finance renovations on the rental property | On the portion of the loan you redraw for private purposes, even if you are ahead in your repayments. |
| You can also claim interest you have pre-paid for up to 12 months in advance. | If you have a loan you used to purchase a rental property and also for another purpose, such as to buy a car, you cannot repay only the portion of the loan related to the personal purchase. Any repayments of the loan are apportioned across both purposes. |
2. I want to rent my current house in the future, should I pay off my loan?
If you want to rent and use your savings to purchase another home (where the debt will be non-deductible) it is best if you can have an offset account with your home loan which means that the loan is not repaid but the interest is reduced while you live there. Then when you move, you are able to take the funds to purchase your new house and the current debt is still tax deductible.
As an owner of a rental property, it is always important to keep records for all income and expenses. This will make it much easier when it comes time to prepare your tax return.
If you have questions or need assistance in relation to the above, please contact our office on 5451 1118 or email reception@mjjaccountants.com.au
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