Refinance IP loan + LOC

Discussion in 'Accounting & Tax' started by XtraChewy, 22nd Apr, 2020.

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  1. XtraChewy

    XtraChewy New Member

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    Hi I'm considering a refinance and would like to know if I could lose deductibility on the interest.

    My current situation:
    Home loan + LOC secured by an investment property. The LOC is for income producing purposes.

    If I consolidate both of these loans into a single loan would I lose deductibility on the interest?
     
  2. Terry_w

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

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    You would create a mixed purpose loan and if you subsequently deposit into the loan or if it is PI you will be losing deductions.
     
  3. XtraChewy

    XtraChewy New Member

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    Thanks for your reply. To be clear, both loans are for income producing purposes. The home loan portion is for a the investment property.
    My understanding is that it would be a mixed purpose loan if one of the original loans was being used for non-income producing purposes?
     
  4. Terry_w

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

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    Was the LOC used for the property? If not then both uses will be the same so no mixing
     
  5. XtraChewy

    XtraChewy New Member

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    The LOC was used to buy ETFs / managed funds (doesn't seem like a great idea in hindsight).

    And the other loan was for the investment property.
     
  6. Terry_w

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

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    In that case the loan would be mixed as there are 2 uses. If the owner of the shares and the property is the same this may not be a big deal however.
     
  7. XtraChewy

    XtraChewy New Member

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    Hi Terry I just read your old post:
    Legal Tip 15: An issue with mixed purpose loans where both portions are investment

    The takeaways I got from that were:

    1. Once I sell one of the investment assets I could lose some deductibility on the mixed purpose loan
    2. I can keep the loans deductible by simply refinancing into two separate loans
    3. Taxes are complicated
     
  8. Terry_w

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

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  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Lets back the bus up a bit pls :)

    Why ONE loan ?

    ta
    rolf
     
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