Subdividing Property and Deductibility of Interest I have mentioned this before, inside other threads, but worth starting a new thread on it. When splitting titles into 2 or more any loan on the original property will also need to be apportioned between the new properties. These portions should ideally be split. There seems to be a common perception out that there where you are subdividing a main residence that all the debt can be loaded up on the new property which will be rented out. That is the owner will try to load the debt on to the investment property thinking they can claim more interest. This doesn’t make sense from either a tax point of view or a common sense point of view. Any loan used to purchase a property will relate to the house and the land of that property. So if a part of the land is chopped off then part of the existing loan will relate to the house and its land and the other part will relate to the new land. Even where the land is split down the middle so that each part will be 50% of the whole the loan cannot simply be split into 2 because one block will have a house and the other won’t. A valuer will need to be engaged so that they can put a value on each part and then the loan can be split into these relevant portions. Where one property of the new split will be lived in, the loan on this will want to be minimised where possible and the investment loan maximised. This cannot be achieved until later until after the titles are split. Once the titles are split the offset account can be linked to the portion relating to the main residence and the costs borrowed for the investment property. And a simple way to maximise deductions is to keep the original loan high, using an offset account, and to borrow all expenses relating to the sub-division. Get the valuer out once the subdivision is complete and make sure the valuer knows all costs relating to the subdivision so that the relevant costs can be loaded to the relevant property. Once the subdivision is complete then the loan should be split into the 2 relevant portions and then and only then should you pay down the PPOR loan down. If you pay down the loan sooner you will end up paying down the investment portion as well.