Strategy to Increase deductions on Divorce Following on from yesterday (See Here), when ownership or property is changed when divorcing or de facto breakup there are tax issues relating to the deductibility of interest. Bruno and Borat, from yesterday’s example, may be able to transfer the property at full market value as a normal transfer instead of doing a transfer based on a relationship break down. Where one spouse is buying the share of the other spouse the interest on the loan used to acquire that share may be deductible. This wouldn’t be seen as borrowing to make a property settlement but borrowing to buy an income producing asset. In some states there will be stamp duty exemptions - but stamp duty will apply in most states. This is the major obstacle, but taking a long term view it may be more beneficial to pay stamp duty now (which could be borrowed) and to obtain ongoing extra tax deductions for the next 30 years or more. It will also be better for the purchaser with CGT as the transfer will be a CGT event and the spouse getting out of the property will wear the CGT. But when it is a transfer relating to the breakdown of a marriage CGT won’t be trigger and the spouse buying the share of the property will inherit the tax debt of the one selling. The major problem, though, would be getting both parties to agree. As always seek taxation and legal advice.