Some people have fixed loans at very high rates. I was talking to someone the other day who had fixed at about 7.5%. Breaking these loans and converting them to variable can cost many thousands of dollars. But doing so can save large sums in ongoing interest as it may be possible to get a rate in the low 4s these days. The cost of breaking a loan is generally deductible in the year it is incurred. So where a loan relates to an investment property break fee will be deductible. What happens if the loan is broken in Jan while the property is an investment and then moved into in Feb. Will the break fee be deductible in full or in part? There does not seem to be any authority on this as far as i can see. Arguably there are 3 ways the fee could be treated. It could need to be apportioned over the life of the fixed loan. So where a loan is fixed for 5 years and the property is rented for 2 but lived in for 1 it could be argued that ⅓ is a private expense. or It may need to be apportioned over the year it was incurred. If it was incurred in Jan then 7/12th of it could relate to the period it was an investment. or The alternative argument is that all of the break fee is deductible as the expense was incurred when the loan related to a property that was producing income. I favour the last approach. The date of incurring the expense should determine its deductibility. Depending on whether you are moving into or out of an investment property it could be worth looking into if you have fixed loans. This extra deduction and the ongoing interest rate savings may make breaking worthwhile. Any of the tax agents out there want to share their views?