RE: Repaying investment loan when selling shares with capital gain - all profit or just loan amount

 Author: powerless-owl(Newbie)Newbie

8 Aug 2024

I have a similar question, which might be what the OP was trying to ask. So let me use their example to see if I can seek clarification.

They have $100k loan having made two income-producing investments of $50k each. Interest on this loan is deductible as it is for investment purposes. They sell one for $75k, $25k capital gain. The loan amount is still $100k. If they take the $75k and use it _not_ for investment purposes, and the loan interest is still deductible because it originally funded an investment that has since been sold, this seems like a massive loophole so I cannot believe this is true.

So, for the interest to remain deductible the money must remain invested. But the question is, does only the original $50k need to remain invested to avoid "polluting" the loan, or must all $75k be reinvested?

I think I have read somewhere that the capital gains, since they are income and taxed*, can then be used for any purpose. However I'd like to seek confirmation of that.

And in particular, what is the situation if the capital gain is offset against capital losses?

Thanks

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