SearchClaiming tax on rental interest
Callum asks:
(updated on Wednesday, September 12th 2018)
Nearly two years ago we purchased a new home which we moved into and decided to keep and rent out our existing home we have owned for over 10 years.
When we purchased our second house we refinanced and set up a revolving credit facility, so effectively one big mortgage, with both homes under our own names. We have five different accounts (suffixes) under our one lender (including day to day accounts) and have two of these five accounts fixed. One is for the lion share of the rental debt, the other for our family home debt.
My question is - can we claim tax on the interest paid to the full current valuation of the rental? IE: The rental is worth approximately $450,000, we currently have $380,000 in a fixed term borrowed, but also have a floating portion of $70,000 which "floats" over both properties.
Our Experts Answer:
No. You must conduct a track and trace exercise to determine exactly what interest is charged on the original debt that existed that funded the acquisition of the home you are now renting. This is made more problematic having lumped everything into a line of credit facility as this often further destroys deductibility. The interest on the debt that was used to buy the new home you are living in is not deductible.
This situation could have been structured properly at the time if you had restructured the ownership of the original home that became a rental into a new entity that borrowed to buy it, thereby freeing up your equity to reduce the debt on the new home purchase. It may still be possible to address this but you will re start the five year bright line count on the restructured property and this government is set to ring fence rental losses from 2019. That means there are many issues now to weigh up.
Most Read
| Unity First Home Buyer special | 3.99 |
| SBS FirstHome Combo | 3.99 |
| ICBC | 4.25 |
| Co-operative Bank - First Home Special | 4.35 |
| Co-operative Bank - Owner Occ | 4.45 |
| TSB Special | 4.49 |
| ANZ Special | 4.49 |
| ASB Bank | 4.49 |
| SBS Bank Special | 4.49 |
| Unity Special | 4.49 |
| Westpac Special | 4.49 |
| TSB Special | 4.00 |
| Kiwibank Special | 4.49 |
| Kainga Ora | 4.49 |
| Nelson Building Society | 4.59 |
| ICBC | 4.59 |
| Unity Special | 4.65 |
| SBS Bank Special | 4.69 |
| ANZ Special | 4.69 |
| BNZ - Std | 4.69 |
| Westpac Special | 4.75 |
| ASB Bank | 4.75 |
| ICBC | 4.99 |
| Kainga Ora | 5.15 |
| SBS Bank Special | 5.29 |
| Westpac Special | 5.29 |
| BNZ - Std | 5.29 |
| Kiwibank Special | 5.39 |
| TSB Special | 5.39 |
| ASB Bank | 5.45 |
| AIA - Go Home Loans | 5.45 |
| Co-operative Bank - Owner Occ | 5.49 |
| BNZ - Classic | 5.59 |
| SBS FirstHome Combo | 3.29 |
| AIA - Back My Build | 3.34 |
| SBS Construction lending for FHB | 3.74 |
| CFML 321 Loans | 3.95 |
| Co-operative Bank - Owner Occ | 4.99 |
| Co-operative Bank - Standard | 4.99 |
| Heartland Bank - Online | 5.30 |
| ICBC | 5.39 |
| Kiwibank - Offset | 5.65 |
| Kiwibank | 5.65 |
| Kainga Ora | 5.69 |
