I've left a message for my tax guy to call me back but I wanted to have a better understanding of debt recycling so I'll ask for help here! I'm looking to refinance an IP and pull out the equity for future investments. There will be a $300k equity loan with the money in a linked offset until I find the next project. I am currently not doing any form of debt recycling and I figure it might be a good time to start. I am thinking that I could potentially do the following: Pay the expenses for my two current IPs from the above borrowed $300k instead of paying from the IP income (my savings). Obviously that would increase my savings/offset on my PPOR and reduce my non-deductible debt whilst creating more deductible debt. I am assuming (will confirm with tax guy) that I could pay rates, maintenance, insurance, PM fees, etc. from the borrowed fund offset? I am wondering if those costs remain deductible for as long as I keep the debt. For example, if I borrow to pay rates on a property and then sell the property but maintain that debt, does it remain tax deductible for the life of the debt? Ideally, I'll use $200k to fund the next purchase but in the meantime, is this a good strategy to begin debt recycling?
Blending two property outgoings on one loan isnt clever. When one is sold that % of that debt is non deductible. Sounds like a mess that will get worse
I've read about people using stamp duty to debt recycle. I assumed the debt would remain deductable even after the property was sold. I can always create additional loan splits to prevent mixing funds. I also don't need to even worry about it at this stage, was just considering it as a way to start down that path.
Tax Tip 71: Deduction of interest after assets sold Tax Tip 71: Deduction of interest after assets sold
A loan can remain deductible in rare cases when a asset is acquired using borrowed money and sold at a loss leaving a residual debt but when a asset is sold the proceeds received or the original cost ( whichever is less) should be repaid. Otherwise the deduction for interest is not deductible.
