PPOR turned IP, back into PPOR

Discussion in 'Accounting & Tax' started by menty, 25th Apr, 2016.

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  1. menty

    menty Well-Known Member

    29th Jun, 2015
    What are the implications for claiming interest when a property is a PPOR initially, then an IP, and turned back into a PPOR?

    I have a property that was initially a PPOR with a PI loan of $355500. From what I understand, while it was a PPOR I could not claim any interest. When I turned into an IP, the loan was switched to IO, and I had paid down the loan to $350K. I was able to claim interest on $350K as a deduction. When I turn it back into a PPOR, I am unable to claim the interest again on this 350K.

    What I can't get around is when it becomes more complex. I have 2 issues here:
    1. When the property was turned into an IP, a loan for $77K was also released as a LOC. This was used to build a granny flat for the property. I have refinanced since then and the total loan is $428K (350+77) for that one property. I can claim interest on the $428K while it was an IP.
    When I turn both the main property and GF into a PPOR, I cannot claim interest on any of this amount. Does it matter that I borrowed $77K to build a granny flat?

    2. When I refinanced, the loan was split into 2 Loans,
    $428K as loan 1
    $Equity as loan 2
    I have paid rates and expenses from loan 2 (borrowed money) for the property while it was an IP. (Approx 2K worth) When it turns into a PPOR, obviously these rates and expenses cannot be claimed. I also used some of this equity money to pay a deposit of $60K for IP2 and rates for IP2.
    Once it turns into a PPOR, am I able to simply pay back $2K into the equity account to cancel out the amount owing? Obviously the $60K is still deductible as IP2 still remains an IP? Should I separate the $2K used for IP1 Expenses and pay that off, or have I tainted my money forever and none of the money in the Equity loan can then be claimed?
  2. Terry_w

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

    18th Jun, 2015
    Australia wide
    Didn't you ask this question before?

    The $77k was used for something - it seems a granny flat construction.
    Does the GF produce income? If so then the interest may be deductible. If not then it won't be.

    The interest on the $60k may be deductible. But it sounds like you have a mixed purpose loan now. You should refinance the loans and split the $60k out and then you could pay off the other non deductible portions.