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IP003(Newbie)Newbie
29 Feb 2024

Dear ATO


If you have a fully paid off owner occupied house that you then refinance the equity to get funds to buy an investment property, can you claim the interest paid on the repayment as a deduction?


So Property 1 (owner occupied) has no mortgage associated with it. Fully paid off.

You refinance the equity on Property 1 and get a loan of $500K at owner occupier interest rate P&I 5% to use to buy Property 2. The loan for Property 2 is secured by Property 1. Therefore associated loan is on Property 1 (initially fully paid off house, now has the mortgage)


Property 2 is not being financed at an investment rate from the bank but at an owner occupier rate. Does it make you ineligible to claim the interest paid as a deduction at tax time, even though the entire $500K was used to purchase the 2nd property which is an investment property?


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3 replies
211 views
3 replies

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Most helpful reply

WendyATO(Community Support)Community Support
5 Mar 2024

Hi @IP003,


Yes, you're still eligible to claim the interest when you've used equity from your owner-occupied house to buy an investment property.


But your investment property must be rented or available to rent so you can claim the interest.

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Most helpful reply

WendyATO(Community Support)Community Support
5 Mar 2024

Hi @IP003,


Yes, you're still eligible to claim the interest when you've used equity from your owner-occupied house to buy an investment property.


But your investment property must be rented or available to rent so you can claim the interest.

Liked by IP003
IP003(Newbie)Newbie
29 May 2024

Thanks Wendy for the clarification. That truly helps to know you can still claim it once the property is rented out.


Now follow up question is, how will this affect my cost base for when I plan on selling the property?


For example, if you were to incur interest on the loan before it is rented out, you can not claim that as a tax deduction (till the property is rented out). Would I then be able to add this to the cost base?


To be clearer, I was reading in the investor tool kit that

"The cost base is usually the cost of the property when you bought it, plus any costs associated with acquiring, holding and selling it. The cost base is made up of 5 elements."


So I'm now wondering, since the money I used to buy the IP came from a home loan that is attached to my main residence and not the IP, will there be any elements I can not include in calculating the cost base of the IP? When I then plan on selling the IP.

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