From: Lotana Von Amor
Hi,
What do the experts think about deductibility of the interest in the following scenario:
I buy an IP for $200K all up (inc costs) borrowing $120K int only. In few years time the IP is worth (bank valuation) say $250. I refinance gearing it up to 80% LVR or $200K, draw additional $80K and spend the money for personal purposes. Would the interest I pay on the additional $80K borrowed be tax-deductible? I am aware of two points of view:
1. My accountant answers "yes". Interest on additional drawings up to the original purchase price plus cost is deductible. And I like that!
2. Some of my friends disagree and in fact left this accountant to exercise more conservative approach were deductibility of interest for each drawing is determined by the purpose of this particular drawing. Therefore not only interest on $80K in the example is not allowed as a deduction, but even if I paid extra $10K before refinancing and wanted to redraw it I would need to use the money for income-generating purposes before I could claim interest as a deduction.
Could the experts shed some light on this one please?
Regards,
Lotana
Hi,
What do the experts think about deductibility of the interest in the following scenario:
I buy an IP for $200K all up (inc costs) borrowing $120K int only. In few years time the IP is worth (bank valuation) say $250. I refinance gearing it up to 80% LVR or $200K, draw additional $80K and spend the money for personal purposes. Would the interest I pay on the additional $80K borrowed be tax-deductible? I am aware of two points of view:
1. My accountant answers "yes". Interest on additional drawings up to the original purchase price plus cost is deductible. And I like that!
2. Some of my friends disagree and in fact left this accountant to exercise more conservative approach were deductibility of interest for each drawing is determined by the purpose of this particular drawing. Therefore not only interest on $80K in the example is not allowed as a deduction, but even if I paid extra $10K before refinancing and wanted to redraw it I would need to use the money for income-generating purposes before I could claim interest as a deduction.
Could the experts shed some light on this one please?
Regards,
Lotana
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