Is line of credit tax deductible?

[cceasy]

I just wanted to know if I refinance my PPOR and have a split loan, one for the existing mortgage and the 2nd borrowed from the equity, is the 2nd account tax deductible? The line of credit account will be used for investment only such as 20% deposit and and unforeseen repair bills.

 

[cceasy]

The reason why I ask is because I read the below link and it states it has to be setup properly in order to be tax deductible... How do I know if it's setup properly?
http://propertyupdate.com.au/invest-high-growth-properties-without-hurting-cash-flow/

 

[Terry_w]

security usually doesn't change deductibility so refinancing generally has no effect.

 

[cceasy]

Thanks Terry.. So how do other people do it? I've seen this method used by other investor where they use line of credit to purchase more properties. If it's not tax effective why would you go down that path?

How do you structure it so it is tax deductible?

 

[Terry_w]

Thanks Terry.. So how do other people do it? I've seen this method used by other investor where they use line of credit to purchase more properties. If it's not tax effective why would you go down that path?

How do you structure it so it is tax deductible?

I am not sure what you are asking. I recommend a LOC/IO with redraw be used for the deposits etc. THen once the investmet properties increase in value the amount used from the LOC can be refinanced back into the main investment loan of the property it is associated with.

 

[Paul@PFI]

OK you refinanced and now have a split loan against PPOR. ie PPOR + LOC. When you draw down the new LOC and it is used for deposit on a new IP then yes it would be deductible. Ditto if you do initial repairs. The interest is deductible when property is rented.

The setup properly part is correct. If you had one loan and blend private (ie PPOR, Car) and deductible borrowings te whole thing can be a mess and tainted. Having separate accounts for each use is the correct way.

However what threw everyone is how you used word "refinance". A refinance wont charge deductions at that time. The USE OF borrowed $ determines it deductibility.

 

[cceasy]

Cool that makes sense... Thanks guys I'm on the right path then