Is Equity Loan tax deductible?

Hi PC gurus,

If I were to withdraw equity from a IP to purchase a PPOR, would the interest I'll be paying on the equity loan tax deductible?

Thanks in advance!

 

If you borrow to invest in an income producing asset the funds would generally be deductible

watch out for detours and mixing.

But you seem to want to borrow for a main residence = No

 

Tax deductability is determined by the use of the funds. PPOR = private use and loan interest therefore not tax deductable.

 

I'm not an accountant but I'd assume the correct answer is no

There's no issues using equity from an investment property to purchase a PPOR though - just ensure that the equity you release is set up as a second, separate loan to the existing investment loan.

That way - you won't mix up your current deductible home loan debt with your PPOR equity release deposit.

Cheers

Jamie

 

Thank you all!

 

As Jamie correctly indicates a LOC can become a mess and care has to betaken. Its not ideal to use a LOC unless it is drawn down for a single and exclusive reason. Its easy to have a blended loan. So if the LOC is ONLY used to buy the IP and thereafter isnt used for other purposes then its all good. BUT note my reference for "thereafter".....

See TR 2000/2 which refers to this issue. TR 2000/2 - Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities (Published on 1 March 2000)

Provided the LOC is ONLY now and later used for the IP proceeds then I see no issue with deductibility. But many people dont follow that view and it can leave all the deductions subject to being disallowed.

Of course if the LOC is used to buy a PPOR it cant be deductible however. Only if the new borrowing was for a ip. If the LOC is the loan security is has no bearing at all.