Deposit for IP

[bonecrusher]

Hi all

If you put 20% deposit on an IP is the amount tax deductible at your respective tax rate.

So if purchase of IP $100000 deposit (coming from own savings) say 20000+costs I am aware the costs are not sure on the deposit.

OR

If you have a LOC for IPs and you take the $20000 from this account I believe interest is tax deductible not sure on the $20000 deposit.


Cheers
BC

[Mry]

If you put a 20% deposit on an IP, is the amount tax deductible at your respective tax rate? sentence reworked

I'm having quite a bit of difficulty understanding what you are asking so I have reworded your sentences to what I think they are asking. Please tell me if they are not.

The deposit itself is not tax deductible. The financing interest incurred will be, and the borrowing costs over 5 years (or to date of sale if less than 5 years) will also be deductible IF the deposit is financed from a loan.

Of course you can claim depreciation and special write off (in most circumstances) on the building after full purchase but that comes later. I suppose that is the only way to make the deposit deductible, in a roundabout way. Best to have a quick word to your accountant or a quantity surveyor about depreciation feasibility before purchase.

So if the purchase of an IP with a $100000 deposit, financed from my savings, and additionally $20000+costs (such as stamp duty), I am aware the costs are deductible but I am not sure on the deposit. sentence reworked

Again, the deposit in itself is not deductible. The costs involved in acquiring a rental property, such as stamp duty and legal fees, are not deductible. They are added to the cost of the property and can be written off when the property is sold.

I'm sure other people in the forum would like to point out that if you have any private debt, you would be best off paying that off with your savings of $100,000 and getting a loan for 100% of the property if possible. In this instance you should speak to your accountant and discuss how to arrange it and in what structure.

OR

If you have a LOC for IPs and you take the $20000 from this account I believe interest is tax deductible not sure on the $20000 deposit.

The interest would be deductible, but the problem with having a shared LOC for IPs is that you need to ensure that you split the interest correctly between each property. If you start "muddying" up the waters, you can make it very confusing for your accountant and heaven forbid that you should move into one of them as your PPOR. It is prudent in most circumstances to have one loan for each property. It gives you more planning opportunities later.

[Spiderman]

If you put 20% deposit on an IP is the amount tax deductible at your respective tax rate.

So if purchase of IP $100000 deposit (coming from own savings) say 20000+costs I am aware the costs are not sure on the deposit.

[/QUOTE]

In brief, no. But keep details for CGT purposes in case you sell.

A good explanation appears in Somers 'More Wealth from Residential Property' p 201.

'The costs of buying and selling property are capital costs and should not be confused with the borrowing costs associated with finance. These two costs have very different tax implications.... '

Rgds, Peter

[bonecrusher]

Hi

Thanks for those explanations so in a nutshell so i am clear

the deposit is not tax deductible

The stamp duty legal fees to do with the purchase of the property etc is not tax deductible

The costs for the borrowing like application fees etc is tax deductible

The interest on the borrowings is tax deductible.


Does the same apply if refinancing your IP with another lender in regards to costs incurred.

Cheers
BC

[tubs]

The stamp duty and legal fees are not tax deductable now, but can be decucted from the profit you make when you sell, reducing your CGT commitment.