loan/tax question

From: Jennifer Tan

Can anyone help with this question?

My partner and I are currently paying off our home loan (for home 1). The loan is a redraw loan. Let's say we decided to buy and move into a new home (home 2). To pay for the deposit on the new home, we redraw on the first home loan (the loan for home 1). We then convert home 1 into an investment property.

Are the interest repayments on home 1 now tax deductible because the loan is now servicing an investment property? In my opinion it is, but I just want to check this with someone.

Thanks to anyone who can help.
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Reply: 1
From: Dale Gatherum-Goss

Hi Jennifer

The loan in your example is NOT tax deductible. This is because the tax office follow the purpose of the funds rather than the property to be secured.


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Reply: 1.1
From: Mark Laszczuk

But wouldn't the REMAINING portion of the loan for home 1 be deductible, excluding the redrawn amount? I understand that the redrawn money is not deductible, but wouldn't the repayments on the loan now be, considering the property has become an investment? I think I'm starting to get the hang of this IP stuff (if I'm correct...if not, well back to the drawing board...)

'no hat, some cattle'
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Reply: 1.1.1
From: Dale Gatherum-Goss

Hi Mark!

Yes, if there is a loan on the original property that has not been paid out, then yes, that small amount will be tax deductible as it relates to the original purchase of the property that now produces rental income.

Well done!

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