Deductibility of interest on cash out

Discussion in 'Loans & Mortgage Brokers' started by Get Rich or Cry Trying, 7th Dec, 2021.

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  1. Get Rich or Cry Trying

    Get Rich or Cry Trying New Member

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    Hi All,

    I have an Investment property for which I am comfortably borrowed against at an LVR of 60%. I am renting at the moment.

    I am in need of approximately $50k to pay some medical expenses.

    If I am to take out an additional loan of $50k in the form of a 'cash out' against my IP to cover the medical expenses, is the interest on that $50k loan portion deductible?

    Cheers
     
  2. standtall

    standtall Well-Known Member

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    Only if you are a federal politician!
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    no, and you would have a mixed loan if you don't split
     
  4. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    Deductibility is based on the usage of the funds. If funds are used for personal use then it shouldn't be, regardless if it is an investment security.
     
  5. skater

    skater Well-Known Member

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    It's a big NO from me as well. Why not split the loan, so you've got a $50k stand alone facility for your medical bills, and then focus on paying this down first.
     
  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Its a 100% no in every possible way. As terry says avoid blending a deductible and non deductible matter as repayments will permanently reduce the deductible elements. And as skater says...Then focus on reduction of the non-deductible split and make avoid extra repayments on the IP loan.
     
  7. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    why not buy a new boat as well.
     
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  8. Jaye Kershler

    Jaye Kershler Well-Known Member

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  9. Ian87

    Ian87 Well-Known Member

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    A lot of people saying no, but maybe you could argue that you are investing in an income producing asset…..
    But no it’s not deductible unfortunately.
     
  10. marty998

    marty998 Well-Known Member

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    I’m always more curious at the thought process that leads people to thinking it is deductible in the first place.
     
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  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    They think 'investment property' and 'deduction' and join the 2 in their minds
     
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  12. Beano

    Beano Well-Known Member

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    Perhaps.
    If the property was purchased by an incorporated company (which you were a shareholder and had loaned the company the forty percent ) and the company was solvent . Then I believe the company could borrow $50k claim the deduction and then could repay part of the loan you loaned to the company .
     
  13. JetstreamVic

    JetstreamVic Well-Known Member

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    Whilst it’s clear the answer is no, it highlights the benefit of an offset account.

    Had you paid this money into your offset account, you could have taking the 50k out and it would have been 100% deductible, and the figures would have been the same.
     
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