Hi @mglw,
In your situation, no – you can’t deduct the accumulated loan interest from the capital gain when you sell.
Interest on a loan is only deductible where the property is used to earn assessable income, such as being rented or genuinely available for rent. Because the property wasn’t used to produce income, the interest is a private expense.
Private interest expenses can’t be carried forward and claimed later, and they also can’t be added to the CGT cost base. Only certain costs can be included in the cost base, such as the purchase price, stamp duty, legal fees, selling costs, and capital improvements.
When you sell the property, CGT is worked out without including those loan interest amounts. You may still be eligible for the CGT discount if you’ve owned the property for more than 12 months.
If the property was rented, or genuinely available for rent, at any time in the past, the answer could be different. But based on what you’ve described, the interest isn’t deductible and can’t be used to reduce the capital gain.
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