Tax deductibity on equity

Hi,

I have a PPOR which was refinanced recently to an interest only loan. The loan is for 640k, of which 140k is equity. The 140k is sitting in an offset account and there is also an additional 20k in savings in the offset account.

I am planning to purchase an IP and wanted to use the 140k equity towards the deposit. I thought the interest on the 140k is tax deductible but after reading some threads here, it seems like it isnt as it is coming from the offset account.

One solution I can think of is maybe to pay the 140k back into the loan and then redraw it to pay the deposit for the IP.

1) Would I then be able to claim a tax deduction on the interest? As the loan is interest only, it is easy enough to apportion the correct amounts.

2) In hindsight, would it have been better to have a split loan or a line of credit facility?

Thanks

 

Yes repaying it and reborrowing again would be a good idea - but don't fall into the same trap again.

If you didn't split the loan you should split first before paying back.

A separate LOC would have prevented this as there is no parking needed, but other issues to consider when using a LOC

 

The $20K cash in offset also paid back to the redraw (split) would enable the $20K to also now be deductible if the credit limits are correct.

 

thank you Terry and Paul, much appreciated

 

Hi terry,

You mentioned that I should split first before payonf back. Due to time constraints, i will not be able to organise the split in time.

Can I put the equity from the offset account back into the home loan and then redraw from the home loan to pay for the investment. And then split it later? (Keeping in mind that this is an interest only loan)

Thanks

 

Check with your bank first if you reduce the loan to zero it doesn't shut the account down. Have had this happen but fortunately we got it reversed.

 

If i have understood your situation correctly dokng that would further mix your loans. Best to seek tax advice