LOC and Tax Deductibility

[dajackal]

Hi There,

I have a line of credit secured against my first IP. I drew down half of it to fund purchase costs for my subsequent IP(x), and the other half to fund purchase cost of IP(y).

If IP(y) becomes my PPOR, and I wish to repay the amount I drew down for this property, can I do so without affecting the deductibility of IP(x)?

Additionally, can I draw down the money I repaid at a later date to fund a future IP (or shares) without affecting deductibility?

Thanks in advance!
J

 

[Terry_w]

Your loan is now a combined loan for 2 properties. Before you do anything you would need to split the loan into 2 and then you could pay down the non deductible portion.

If paid it off now then you would be diluting both loans.

If you paid off the loan fully, or down to $1 then you can reborrow the money and claim the interest if the borrowings was for shares etc.

If not paying it down fully then it would be best to create a new split so avoid it being a mixed loan again.

 

[jonmardell]

Your loan is now a combined loan for 2 properties. Before you do anything you would need to split the loan into 2 and then you could pay down the non deductible portion.

If paid it off now then you would be diluting both loans.

If you paid off the loan fully, or down to $1 then you can reborrow the money and claim the interest if the borrowings was for shares etc.

If not paying it down fully then it would be best to create a new split so avoid it being a mixed loan again.

correct advice from terry.

 

[pieman]

I'm thinking your ok if you repay In full the amount borrowed for ip y and assuming you haven't capitalized interest

 

[dajackal]

If not paying it down fully then it would be best to create a new split so avoid it being a mixed loan again.

so i split the line of credit loan by the amount i drew down to fund IP(y) and then pay off the new loan? they'll be costs involved to do this right?

i don't quite understand how that will be any different to repaying the same amount into the original LOC.

hoping you can clarify
cheers,
j

 

[pieman]

Thinking about it, surely if you wiped the entire original loan amount for that ip, then you wouldn't have a problem. You are no longer claiming interest for that ip and you have shown there is a clear nexus between the (now 1 ip) and the loan account.