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Re: Using redraw extra repayments to purchase new main residence

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Have a redraw facility on owner occupied home loan. Home loan is at 140k remaining and have roughly 135k of extra repayments sitting in PPOR home loan. Want to withdraw these funds and use on down payment for new PPOR. Will turn old PPOR into investment property. Is the interest occurred on old PPOR/new investment property tax deductible?
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Taxicorn

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@Nathan3 

 

Are you asking if you change your Principal Place of residence to a rental and rent it out would the interest payments directly related to that property be tax-deductible?

 

If so then yes they now be tax-deductible.

 

If you are going to use some money in the old mortgage to fund a new principal place of residence then no, why should they be?

 

You would have to break down the interest payments between the old/new house.

 

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Taxicorn

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@Nathan3 

 

Are you asking if you change your Principal Place of residence to a rental and rent it out would the interest payments directly related to that property be tax-deductible?

 

If so then yes they now be tax-deductible.

 

If you are going to use some money in the old mortgage to fund a new principal place of residence then no, why should they be?

 

You would have to break down the interest payments between the old/new house.

 

Devotee Registered Tax Practitioner

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From the date that the old property becomes available for rent, the interest on the loan will be deductible in part.

 

The interest applicable to the remaining balance of the original loan for purchase of the property will be deductible,

but any interest relating to further borrowing for private puposes will not be deductible.

 

For example, if 100% of current balance  $ 140 K is tracable back to property purchase, and new borrowing is $ 135 K, then deduction for interest is     total interest  x  140/275.

 

The simple apportionment method does not work if there are multiple re-draws, so then you need to apply the formula in TR 2000/2.

 

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