Tax Tip 211: Claiming Interest after Sale of Asset at a Loss

Some investors end up selling a property or shares at a loss. They may have borrowed to acquire the property or shares but the sale proceeds may not be enough to pay out the loan – they probably would have used another property as security for at least part of the loan.


In certain circumstances it is possible to keep claiming the interest on the loan in these cases even when there is no income coming in.


Example

Bart bought a property in a mining town for $500,000 and he borrowed $400,000.

The property dropped in value to $300,000 and the bank has let him sell the property but to continue with an unsecured loan of $100,000 (it does happen).


Generally, the interest on Bart’s loan would continue to be deductible as long as he does not try to artificially increase his benefits by extending the loan term, increasing the loan etc. Also, Bart’s case would weaken if he happened to have $100,000 cash in a savings account.


If you are going to be selling at a loss seek tax advice well before hand so you can potentially set yourself up for much more in tax savings which could help you reduce the pain on the loss.

Seek tax advice well in advance of selling – from your tax agent or tax lawyer.

 

make sure you get tax advice before claiming interest on an asset that is no longer owned.