Interest Deductibility when property for sale and untenanted Interest is only deductible if it relates to the production of income. That means if there is no tenant and the owner is not actively trying to find one then the interest won’t be deductible. Example John had an investment property which he wanted to sell and he thought it would be easier to sell if he had no tenants in it. So he asked the tenants to leave and put the property on the market. But it ended up taking 6 months to sell. Can John deduct the interest incurred after not having any tenants? Generally not. The property is not available to rent and not being advertised to find tenants so the interest does not relate to the generation of income. However, the interest during this period may be deducted against the capital gains of the property because of s110-45, i.e. the interest will form part of the cost base. This is not ideal as the 50% CGT discount will reduce the savings.