What to do with deposit if you sell IP

[Robyne]

I have 2 IPs. For the second IP I used equity from the first for the deposit. If I were to sell (gulp, yes sell) the second property would I be obliged by the ATO to put the amount of the deposit back into the loan for the first property or could I just take the whole lot less capital gains and tax agents fees and put it back into my PPOR mortgage?

Robyne?

[Simon]

You can do what you like with the proceeds from the sale.

However if there is a loan still existing and the proceeds of that loan aren't used in an income producing manner then you cannot claim the interest as a tax deduction.

So to minimise confusion I would consider repaying the deposit back into the 1st IP mortgage. If you pay it into your home loan then you will need to work out which portion of the IP mortgage is used for your PPOR and not claim the interest on that part.

Simple as that!

Cheers,