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Deductability of interest on investment loan remaining after investment sold at a loss

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I recently sold my investment property at a loss. There is a 35,000 deficit between the settlement price and the mortgage. I will need to get a line of credit to cover this amount to discharge the mortgage. Is the interest on the line of credit tax deductable?

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ATO Certified

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Hi @AJ29,

 

Thanks for your patience while we checked this out with our technical experts.

 

They've advised that, generally, where you've borrowed money to acquire an income producing asset (such as a rental property) but you've stopped using the asset for producing income or have sold it, you're not entitled to interest deductions.

 

Ordinarily, if you've sold an asset, it would be expected that the loan would be paid out with the sale proceeds. However, in certain circumstances you may still be entitled to a deduction for recurrent interest expenses where the application of the borrowed money is used for purposes that have a connection with producing income.  For example, in some cases, refinancing arrangements can maintain interest deductibility.

 

To the extent that your situation is similar to the following Interest deductions on loan for borrowing shortfall on sold property view, then this would mean that the interest could be deductible.

 

Hope this helps.

 

Thanks, NicM

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Community Manager

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Hi @AJ29 

 

Great question!

 

We are looking into this with our technical specialists and will get back to you shortly.

Best answer

ATO Certified

Moderator

Replies 0

Hi @AJ29,

 

Thanks for your patience while we checked this out with our technical experts.

 

They've advised that, generally, where you've borrowed money to acquire an income producing asset (such as a rental property) but you've stopped using the asset for producing income or have sold it, you're not entitled to interest deductions.

 

Ordinarily, if you've sold an asset, it would be expected that the loan would be paid out with the sale proceeds. However, in certain circumstances you may still be entitled to a deduction for recurrent interest expenses where the application of the borrowed money is used for purposes that have a connection with producing income.  For example, in some cases, refinancing arrangements can maintain interest deductibility.

 

To the extent that your situation is similar to the following Interest deductions on loan for borrowing shortfall on sold property view, then this would mean that the interest could be deductible.

 

Hope this helps.

 

Thanks, NicM

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