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Break cost on Fixed interest loan for Residential Investment Property

Newbie

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I have an existing investment property which I have a Mortgage loan for.  The loan is for 10 years and is interest only and currently on fixed interest rate for 5 years.  As part of tax return I claim the interest i pay as a deduction (with other expenses such as property management fees, Rates, utilitites and Insurance) along with income (Rent).

 

I have almost 18 months to go on the fixed period but I am looking at getting a better interest rate with same financial institution and I am not seeling property.  To do this there is a Break cost involved as I am leaving the fixed period early.  Is this break cost 100% tax deductable or only a portion (i.e the interest amount) tax deductable?

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ATO Community Support

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Hi @mickmcclellan

 

 

Our Rental properties guide 2020 does talk to claiming expenses for Mortgage discharge expenses. You may find both these links helpful.

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Devotee

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Most helpful response

ATO Community Support

Replies 0

Hi @mickmcclellan

 

 

Our Rental properties guide 2020 does talk to claiming expenses for Mortgage discharge expenses. You may find both these links helpful.

Newbie

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Hi I have the same question as well, however the answers in this thread seem to relate to mortgage discharge expenses, which are different.

 

I am not looking to discharge a loan on an investment property, which would incur a mortgage discharge fee.

 

I am looking to break the existing fixed interest rate loan on an investment property, in order to achieve a cheaper interest rate. In order to do this, I will incur a bank fee which is called a break fee (or in banking lingo - economic costs) - which is not the same as a mortgage discharge fee.

 

My question to the ATO / the community is whether this break fee is tax deductible? Any and all advice would be appreciated.

ATO Community Support

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Hello @Flodge,

 

Thank you for your question.

 

Mortgage discharge expenses also include penalty payments such as break fees. 

Break fees are considered a type of discharge fee. This is because they are a penalty to make up for the interest payments the bank will not receive due to the early exit on a fixed rate loan. 

 

If your loan was against a rental property which was rented or available for rent, your break fees are deductible as a discharge expense.