Interest will be deductable for a rental property under the following circumstances:
- The rental property is either actually rented or genuinely available to rent, i.e. listed with a real estate agent for rent.
- The rental property is being built (This deduction ceases on 1st July 2019. From that date the interest will instead only be included in the assets cost base).
- Work is done to a rental property after purchase to make it more attractive to tenants.
- A rental property is taken off the market for repairs or improvements.
- Borrowed monies are used for repairs or renovations, to buy depreciating assets for the rental property, or to pay deductible rental property expenses.
- To the extent that a loan was used to acquire a rental property. Where any part of the loan was used for private purposes that portion of the interest will not be deductible.
- Interest incurred prior to the settlement date.
- Where a rental property is sold for a loss and a loan shortfall amount continues after the sale.
Of course you also need to keep appropriate records to calculate the interest expense and determine if it’s deductible.
Loans with redraw facilities should not be used to pay private expenses. – This is because any private expense made on a redraw facility (even if promptly repaid), will change part of the borrowings into private (with the result that some of the interest expense will become private and non-deductible).
Do you think you’ve paid too much tax this year? Why not get a second opinion on how much TAX you should be paying? You can arrange a FREE Tax Review Session with us, just click on the red button at the top or our website.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.