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Equity Loan Interest Deduction

Discussion in 'Accounting & Tax' started by sliderc, 27th Oct, 2015.

  1. sliderc

    sliderc Member

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    Hi Guys,
    Question, I took some equity out of investment property A to fund investment property B. Later that Year I extended the equity loan on investment property A a little more to buy investment property C.

    For the interest paid on the equity loan, do I deduct it as an interest payment associated with Investment property A?

    Cheers.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  3. D.T.

    D.T. Adelaide Property Manager Business Member

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    Has nothing to do with A, it's the purpose of the funds that dictate their deductibility, not their location.
    You should apportion the interest between B & C depending on their amounts.
    It's all deductible since it all went towards investment purposes, but you should still apportion, why?
    1) You might sell property B in which case the interest stops being deductible for B's portion, or
    2) You might change which entity property C belongs to, in which case that entity gets C's portion instead of you, or
    3) Any other changes

    Working it out at the start will make it heaps easier if any changes are made in the future. Working it out then can be tricky.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Is A B and C owned by the same persons in the same %? If not the results will differ
     
  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    How many loan splits do you have - it sounds like 2? If that right, you might like to consider splitting the equity portion to reflect the amounts used for each IP - it can make working out deductions much easier and as DT said, if you were to sell one it's easy to see exactly which loan has been repaid. If it's all lumped in together it can be argued the funds are paid off both portions equally.
     
  6. sliderc

    sliderc Member

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    Hi Guys,
    Property A is split 50/50 between myself and wife. Property B and C are in my name alone.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    only you will be able to claim the interest on the money used for B and for C.
     
  8. sliderc

    sliderc Member

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    So just to be clear, the interest deductions are added to the properties which the equity loan was aquired for.

    In this case, property B up until a point where property C was purchased, at which point, as the loan was increased such that the new apportioned amounts are 40% property B, 60% property C, for that year I, from that point, would divide as such. Next year it will just be a 40/60 split...

    Sound logical?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Not sure if you mean what I think you mean.

    Deductible against what the borrowed funds were used for.