Would this loan be tax-deductible if PPOR becomes an IP

Discussion in 'Accounting & Tax' started by wylie, 14th Apr, 2022.

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  1. wylie

    wylie Moderator Staff Member

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    A conversation with someone recently has me wondering about something.

    Someone lives in a PPOR and refinances the loan to pull out equity to repay a car loan.

    Subsequently, they move out of the PPOR and it becomes a rental property.

    Is the whole loan able to become tax deductible against the rental income?
     
    wylie, 14th Apr, 2022
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  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    not a tax guy

    Classic contaminated loan, since not all the debt relates to the purchase of the property.

    Have seen some doozies with redraw loans where clients lived out of their home loan, with no resilient deductible debt remaining

    ta
    rolf
     
    Rolf Latham, 14th Apr, 2022
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  3. wylie

    wylie Moderator Staff Member

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    Thanks Rolf. I'll pass this on.

    I guess it must happen fairly often, and until the tax man knocks on the door asking "please explain" I would think it is not something anyone thinks too much about. I'd not thought about it until just recently.
     
    wylie, 14th Apr, 2022
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  4. Mike A

    Mike A Well-Known Member

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    yes mixed purpose loan

    worth considering splitting it and preventing further problems
     
    Mike A, 14th Apr, 2022
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  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    No. The loan doesn't relate solely to the purchase of that property.
    Tax Tip 129: Deductibility of Loans when later renting out your main residence. https://propertychat.com.au/community/threads/tax-tip-129-deductibility-of-loans-when-later-renting-out-your-main-residence.11043/


    Tax Tip 378: The Importance of Keeping the Owner Occupied Loan Unmixed Tax Tip 378: The Importance of Keeping the Owner Occupied Loan Unmixed
     
    Terry_w, 14th Apr, 2022
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  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Deductibility always comes back to the USE of each dollar of borrowed money
     
    Paul@PAS, 14th Apr, 2022
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  7. wylie

    wylie Moderator Staff Member

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    Thank you. I’ll pass this on so any refinance is done with correct knowledge.
     
    wylie, 14th Apr, 2022
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