Is the interest on a loan for a Proportional Ownership Property tax deductible?

Question from Shane Carroll updated on 22nd January 2008:

With the increasing prevalence of Proportional Ownership Properties on the market I was interested in whether all the interest on a loan for one of these properties would be tax deductible. For instance say you owned a 1/6 share of a holiday home and you used two weeks of your share of 8 allocated weeks for your own use and rented out the other 6 weeks. Would the IRD view this as the property being available for 6 out of 52 weeks or for 75% of the time - that being 3/4 of the time you are allocated for the property? Also would you apportion the depreciation as 1/6 of assessed total value?

Our expert responded:

Ultimately, the answer to this question comes back to property itself and the agreement between the owners. If your share results in you having exclusive use, that is, your 1/6th share is represented as one apartment in a block of 6, then the answer is quite different to shared ownership of a single dwelling (six people owning a share of a single use dwelling). By the sound of it, your 1/6th share is as a part owner in a single dwelling (and the certificate of title shows you separately as an owner for your 1/6th share)and based on that, the agreement between the owners will be the first port of call as to what the potential tax treatment will be before anything else can be considered.

If each owner gets eight weeks of exclusive use, that's a total of 48 weeks, leaving three weeks unaccounted for - what happens with those? If those weeks are regarded as weeks where the property can be rented out, how are they dealt with in terms of the owners agreement? If you can rent out the property for six of your eight exclusive use weeks, it is likely that you are only able to claim six weeks of expenses, that is six weeks of interest, six weeks of your share of the rates, insurance, etc. You wold not be able to claim 75% of the year's expenses, only six weeks' worth of the annual expenses. A complicating factor may also be that you can only claim 6/48ths of the yearly expenses too, depending on what happens to the three weeks that are unaccounted for. Again, it comes back to the owners agreement.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.



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