Can I claim these?

[komstak]

Hope somebody could help me clear this up.

I bought an IP last year and used the redraw account of my PPOR to pay stamp duty. Is the interest due to this tax deductible?

My redraw account doesn't show the total interest per month as it is already incorporated into the total interest of the loan... what do others do to compute the interest? I tried it manually and I think I got it correctly using a spreadsheet and a certain formula but due to changes into the interest rates it has become cumbersome lately.

I think I also took the payment for the solicitor from the redraw. Will the additional interest due this be tax deductible?

 

[kev007]

The interest on the stamp duty loan / solicitor monies loan will be tax deductible.
The stamp duty and solicitors fees form part of the cost base for capital gains purposes.

 

[jaycee]

yes it will be tax deductable.
I'd just work it out the long way on excel like this - you copy & paste nearly all of it, not that hard, just not a neat short report, still gives the result

...........A......................B....................C.......................D
1 1/7/09.............10000.............6% .............=(B1*C1)/365.25
2 =A1+1.............10000.............6%.............=(B2*C2)/365.25
3 =A2+1.............10000.............6%.............=(B3*C3)/365.25
4 =A3+1.............10000.............6%.............=(B4*C4)/365.25
etc

 

[komstak]

yes it will be tax deductable.
I'd just work it out the long way on excel like this - you copy & paste nearly all of it, not that hard, just not a neat short report, still gives the result

...........A......................B....................C.......................D
1 1/7/09.............10000.............6% .............=(B1*C1)/365.25
2 =A1+1.............10000.............6%.............=(B2*C2)/365.25
3 =A2+1.............10000.............6%.............=(B3*C3)/365.25
4 =A3+1.............10000.............6%.............=(B4*C4)/365.25
etc

Hi Jaycee,

I have the same spreadsheet only that B2=B1+D1, B3=B2+D2, etc. and then it goes back to 10000 when interest has been paid at the end of the month. I'm not sure about 365.25 days though although it would be the same as using 366 when it's a leap year and 365 when it's not. I used this spread sheet to validate the formula I was using so I just compute monthly depending on the number of days in a month or until the rates change.

Hmm.. so there's no other way of getting this I suppose but to compute it manually?

 

[Terryw]

Redrawing from a private loan is not an ideal way to do things. This is because any future repayments or deposits to that loan must be apportioned to the investment portion as well as the private portion.

ie you cannot chose to pay off the private portion first if it is a joint loan.

 

[komstak]

Redrawing from a private loan is not an ideal way to do things. This is because any future repayments or deposits to that loan must be apportioned to the investment portion as well as the private portion.

ie you cannot chose to pay off the private portion first if it is a joint loan.

My redraw account hasn't been used for any private purchases if that is what you're referring to... and have no intention of using it for buying private stuff (that's what the offset it for).

 

[Terryw]

Thats good. As long as you did not take the money from the same account as the home loan you will be right. You can then pay off the home loan portion first.

 

[Terryw]

Komstak

Actually, just to clarify, above you said the money was taken from the redraw on your PPOR loan. Does this redraw portion have a separate account to the main loan? Sounds like it is just one big loan.

This means you have mixed private borrowings with investment borrowings and the interest must be apportioned.

Sounds like you know that, but when you make a repayment to the loan the repayment must be apportioned into 2 - part to the investment loan and part to the private loan.

For example. If you had a $90,000 loan and withdrew $10,000 for investment.
90% of the loan is private and 10% investment.

You then make a $100 payment. 90% of this goes to the private part and 10% to the investment. Next month the same and so on.

So will be paying down investment debt while you still have private debt, which is less than ideal. But the main problem will be working it all out on your spreadsheet.

You could make things easier by having a IO loan and putting all extra money in the offset, but then you are still saving a bit off the investment too, at the expense of your private debt.

 

[Terryw]

Actually, on second thoughts, it probably wouldn't be hard to calculate the interest on the loan if redraw is used. This is because the interest on the investment loan would be decreasing as fast as the private loan - so the percentages should always be the same.

It would only get confusing if the redraw was used again.

 

[komstak]

Komstak

Actually, just to clarify, above you said the money was taken from the redraw on your PPOR loan. Does this redraw portion have a separate account to the main loan? Sounds like it is just one big loan.

This means you have mixed private borrowings with investment borrowings and the interest must be apportioned.

Sounds like you know that, but when you make a repayment to the loan the repayment must be apportioned into 2 - part to the investment loan and part to the private loan.

For example. If you had a $90,000 loan and withdrew $10,000 for investment.
90% of the loan is private and 10% investment.

You then make a $100 payment. 90% of this goes to the private part and 10% to the investment. Next month the same and so on.

So will be paying down investment debt while you still have private debt, which is less than ideal. But the main problem will be working it all out on your spreadsheet.

You could make things easier by having a IO loan and putting all extra money in the offset, but then you are still saving a bit off the investment too, at the expense of your private debt.

Hi Terry,

I really appreciate the time you put into my enquiry as I bought the IP with only "somersoft" knowledge on hand and nothing else. I think it was enough but I still didn't do it as cleanly as I would have liked it to be (didn't get a loc and instead used my redraw; and I x-colled since I didn't have a choice) but I learned a lot "after" I bought the IP.

My current PPOR loan is an IO with a redraw and an offset account. I derived the downpayment for my IP from the PPOR redraw which I haven't touched for anything else... then I put all my extra money in the PPOR offset.

Based on the above, if I used 50K from the redraw to buy the IP, I just compute the daily interest based on the daily IR rate of my PPOR loan and the cummulative monthly total would be my deductible interest for the month. Then it goes back to nil after payment and I repeat the accumulation of daily interests... I think is how it works out? The money I put in the offset would not affect the deductible interest in any way, would it?