Mixed Use of LOC / Equity Access Loan

[PIppety]

Hiya Dale, (or anyone that can help)

I have seen comments passed on the forum in the past that refer to the fact that you can use a LOC / Equity Access Loan to complete repairs / reno's and claim the interest so long as you don't use it for personal use.

My questions are:

1. Is it difficult to assess the interest apportioned to each IP if you use the LOC for repairs / reno's for multiple IPs only ?

2. Can you use the LOC for IP and personal use in the following scenario:

- Get an IP painted for $5K then pay it off over time
- When the balance returns to NIL (waiting for the interest to charge from the final month) use it for a renovation to my PPOR then pay that off over time
- Then use it to renovate another IP

In the above scenario it would appear that it would be easy to identify what the LOC was used for and what interest is tax deductible and what is not.

Any advice you could give me would be greatly appreciated.

Cheers
PIppety

 

[DaleGG]

Hiya!

I don't see a problem with either scenario. If funds are used for investment purposes then the interest will be tax deductible.

(Sometimes though, the hard part is actually calculating the interest that relates to each IP, or that relates to personal use.)

Dale

Originally posted by PIppety
Hiya Dale, (or anyone that can help)

I have seen comments passed on the forum in the past that refer to the fact that you can use a LOC / Equity Access Loan to complete repairs / reno's and claim the interest so long as you don't use it for personal use.

My questions are:

1. Is it difficult to assess the interest apportioned to each IP if you use the LOC for repairs / reno's for multiple IPs only ?

2. Can you use the LOC for IP and personal use in the following scenario:

- Get an IP painted for $5K then pay it off over time
- When the balance returns to NIL (waiting for the interest to charge from the final month) use it for a renovation to my PPOR then pay that off over time
- Then use it to renovate another IP

In the above scenario it would appear that it would be easy to identify what the LOC was used for and what interest is tax deductible and what is not.

Any advice you could give me would be greatly appreciated.

Cheers
PIppety

 

[geoffw]

Re: Re: Mixed Use of LOC / Equity Access Loan

Originally posted by DaleGG
(Sometimes though, the hard part is actually calculating the interest that relates to each IP, or that relates to personal use.)

Dale,

Is it necessary to apportion interest rates between IPs? Would that only be necessary if the IPs were in different names?

 

[DaleGG]

Re: Re: Re: Mixed Use of LOC / Equity Access Loan

Hi Geoff

No, I agree with you. If there were multiple IP's and the lOC related to use for all of them it would not specifically matter if the interest was not 100% correctly allocated to each IP.

Dale

Originally posted by geoffw
Dale,

Is it necessary to apportion interest rates between IPs? Would that only be necessary if the IPs were in different names?

 

[Kevmeister]

I think that's why Rolf suggests separate LOC accounts for investment versus personal use.

That way, as Dale points out, you know that everything spent in the "investment" LOC was for investment use, the interest is then [presumably] wholly deductible.

Calculating interest yourself when you are mixing deductible and non-deductible spending would be a pain in the bum when:

1. Your drawn downs are staggered over time ("dribs and drabs").
and/or
2. Your interest rate is fluctuating.

At which point (to be accurate) you would have to measure it somewhat like a bank would. Every day note how much of the LOC has been used for tax-deductible expenses, which means you can calculate every day how much interest you have incurred. And, for every day you must use the interest rate applicable for that day.

Seems pretty anal doing that (and hard, and time-consuming). Just easier to have a separate LOC account for investments, and let the bank calculate the interest for you.

 

[geoffw]

Kevin,

I've just been going through the exercise. I have a LOC which I only use for investment purposes- but I like to make sure that I can prove that it really is only used for investment purposes. So I go through item by item recording what the transaction was.

It's had a benefit I didn't quite expect. There's been a few items which I had forgotten about (bad record keeping)- which I was able to chase down, and claim the items which I would otherwsie not have claimed- some hundreds worth.

That aside, I'm still not quite sore of Dale's comment

If there were multiple IP's and the lOC related to use for all of them it would not specifically matter if the interest was not 100% correctly allocated to each IP.

I was wondering if it needed to be apportiooned to the various IPs at all. But I guess there might be two reasons to do this

1. For CGT, if a place is sold, to claim the capital items less allowable cost reductions
2. For your own record keeping, to know which IP was performing better

Also most items would be fairly clear cut. The major items such as interest, rates and insurance would be clear. It might get fuzzy Iguess if, for instance, you bought a lot of materials at one time for use on more than one property- and that would be difficult for CGT calculation anyway.