Re: Deductions for borrowing money -- Cox Business Accountants

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Date Posted: Friday, October 22, 01:32:52pm
Author: Laura
Subject: Re: Deductions for borrowing money
In reply to: Sven 's message, "Deductions for borrowing money" on Thursday, October 21, 03:34:42pm

Costs such as legal fees which are incurred in purchasing a rental property are capital in nature which means they are not tax deductible. However they can be added to the cost base of the property will reduce the capital gains tax you pay when the property is sold.

The only time that stamp duty can be used as a tax deduction is when land is under 'leasehold' Unfortunately land in the NT is not leasehold land.

The deductions for interest expenses on the money you borrowed to finance the investment property can be calculated by working out how much of the loan is for the new property and how much is for you home loan. Once this is done you just apportion the interest in the same ratio for example. You have $50,000 left of your home loan to pay out. You then extend your loan by $150,000 to buy an investment property. The total loan is now $200,000. At the end of the financial year the total interest on the loan was $15,000. To work out how much interest is deductible divide the toal amount of the loan by the amount used for the investment property and then multiply the total interest by this figure. For the above example the workings look like this:

Investment Property loan/Total Borrowings x Total interest

$150,000/$200,000 x 15,000 = $11250

Therefore the total interest that you claim as a tax deduction is $11250

This is general advice only and should be used as a guide only if you want specific information please consult a tax advisor.

Laura

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