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rodribrox(I'm new)I'm new
14 Apr 2025

Hello,


We have property A which is PPOR (low mortgage balance) and Property B (high mortgage balance) which is currently rented as investment property, but the tenants will vacate shortly and the family will move into Property B later this year. Property A will become a rental.


Property A has about 50% equity, so my question is: can I refinance Property A as investment, interest only loan (up to 80%LVR) so that the loan is tax deductible? The funds will be transferred into the offset account of Property B which by then will be PPOR to lower the interest on that non-deductible loan.


Is that possible? Been getting conflicting advice from my tax agent and mortgage broker.

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wonka5(Devotee)Devotee
14 Apr 2025

No you can’t do that.


When considering if interest on a loan is tax deductible, you need to think about where each dollar is that loan was spent / used. If that dollar has not been used to create assessable income it is not deductible.


In your scenario, you have said you’d create a new loan to keep in an offset account to reduce interest paid on property B which would now be your principal place of residence. This is not an income producing asset and there would be no deduction.

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rodribrox(I'm new)I'm new
15 Apr 2025

Thanks for the prompt reply.


Do you see any other alternatives to use the equity from Property A? I did put a lot of effort over many years with additional repayments to lower the LVR/reduce interest paid and feel stuck with the money in Property A, now that we are planning on switching to Property B becoming PPOR.


I was reading about debt consolidation and perhaps refinance to have a single loan for both properties (secured against Property A) but split into 2 mortgages, one for investment (Prop A - rental) and second one for PPOR (Property B), with the loan portion for A being tax deductible.

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Refinance of PPOR into investment and use funds to lower loan of new house | ATO Community