Interest Tax deductions

Posted on January 22nd, 2009

Home Mortgage Interest is a tax-deductible expense for rental properties and Interest on Investment property loans is usually the biggest deduction you can claim. However, if any of the money was used for private purposes, then the interest on that part of the loan is not deductible. Thus, if you only rent some rooms in the house, the interest would only be deductible on the areas that were rented out.

Can I claim Interest deduction on my own home?

Interest on a loan that was used to buy your home is not deductible as it is private in nature. However, if your house starts earning rental income, the interest will be deductible from the point your home becomes income producing.
For example, if you move overseas for few years and rent the house in while your’re out of the country.

Can I claim Interest deduction before any rental income is derived?

Yes. If you fully intend to rent a property out, interest and other expenses will still be deductible even if no rent is received.
The tax office takes into consideration the time you might take for renovations or when you look for tenants.

What else can you claim?

You can claim the interest charged on the loan you used to:
- Purchase a depreciating asset (Such as Air-condition) for the rental property.
- Finance renovations and repairs on the rental property such as roof repairs.
- Purchase land on which to build a rental property.

What can’t you claim?

As motioned above you can’t claim interest on any private expanse such as money used for a car loan or when the home hasn’t been bought to produce income

What records do you need to keep?

You need to keep records of all Interest expenses in order to make a claim. You have to keep them for up to five years from the date your tax return is lodged.

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