LoC funds for renovation - interest deductible?

Hi,

Apologies in advance - this may be a very basic question or already answered somewhere on PC/SS.

I have a LoC for $200k. If for example I were to use $100k towards an investment purchase, the interest would be deductible (generally speaking). However, if the property needed $50k of renovation work, could I draw down on the LoC for these funds and claim the interest as deductible - e.g. Interest on $150k?

If not, what is the most suitable (tax effective) was to fund a major Reno?

Thanks.

 

Yes

 

yes...The key issue is keeping the LOC uses apart. ie :IP acquiistion, reno from other uses. A seperate credit facility (split loan) would be ideal so the loan is not blended.

 

Cheers. I can spilt my LoC so I'll do that.

 

I thought interest on borrowings for renos (that aren't repairs) weren't tax deductible?

 

Why

Why do you think this?

 

I looked this up earlier in the year and found an article similar to this

I suspect I am getting confused between the capital cost of the renos being deductible, as opposed to the interest on borrowings to pay for those renos being deductible...

 

Yes lots confuse this. Like buying a house- you cannot claim the cost but you can claim the interest on money borrowed to buy it.

 

Thanks for the clarification, glad to get my head around it finally

 

So there's two loans, the LoC for $100,000 (say 20% of purchase) and the IP loan (say $400,000 being 80% of purchase).
Take another $50,000 out of LoC for renos before renting out, making that loan $150,000.
Should the rent collected go
a) into the LoC,
b) into the IP loan repayments,
c) into the IP loan offset,
d) somewhere else (PPOR offset, under the bed, ...)

Should expenses incurred in the managing of the IP (PM fees, fixing the toilet, rates, etc) be drawn from:
a) the LoC
b) the IP loan redraw,
c) the IP loan offset,
d) anywhere else (PPOR offset, under the bed, ...)

 

Income should be paid into the offset on the main residence. Interest on the loc and io investment loan should be taken from the offset.

The loc can be used to pay expenses other than interest but get tax advice first.

See my tax tip on debt recycling.

 

Thanks Terry!

 

Wondering why you need to keep the LOCs separate if both are tax deductible?

I have taken a BA fee and a deposit from the same LOC. Does that mean I've mixed the loan? Can I pay back the BA fee and still claim the interest on the LOC?

 

Hi Pins

Please see my post on mixed loans in the legal forum

 

This one


An issue with mixed purpose loans where both portions are investment.

https://propertychat.com.au/communi...loans-where-both-portions-are-investment.902/


Ideally one split should be used for 1 investment property. So BA fee and stamp duty for the same property to come from the same loan is ok.

 

Thanks Terry - sorry but can you explain why the renovation borrowings need to be kept separate from the acquisition borrowings ie deposit monies?

 

If it is for the same property then there is no need to keep separate.