I currently own and live in a 3 bedrooms property. I plan to rent the other two rooms out to my friends at the commercial rate. From the detailed floor plan, I have calculated that approximately 65% of the total floor area will be used for renting purposes, and as such, I would include 65% of my mortgage interest at tax deduction.
Now let's say my current loan balance is $400,000 and I use the redraw facility to draw out $100,000 (new loan balance is $500,000) to invest in dividend-producing shares per TR2000/2, what would be my total deductibility as a percentage at the end of the financial year?
In my head it can be either:
- 65% + $100,000 / $500,000 = 85%, or
- 65% + ($100,000 / $500,000) x 35% = 72%
Which one is the correct calculation or both of them are wrong (if so please guide me on how to get the correct answer)?
Thank you
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