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PJ M.
PJ M.
New Farm, QLD
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If I have a line of credit and previously used it for personal purchases but paid it off in full last year (non deductible debt), but then decide to re-use the line of credit on a new investment, can I still claim the new interest on the new investment?

5 months ago

Responses

Hi PJ,

Yes, if you've paid it off to zero and now drawn on it to invest in income producing assets, then the interest from now will be tax deductible.

These days I've moved well away from lines of credits for clients as they are a very expensive way to borrow money compared to a P&I loan. So, I often will arrange a normal loan with the proceeds deposited into an offset account, then draw on the offset account like a LOC.

Cheers

Glenn

Comments

Hi PJM,
the thing which determines deductibility is the PURPOSE of the borrowings. So if you draw down on an existing facility which may have private portion to it, the portion of the loan which is attributable to the creditable purpose will be deductible.

One of the upshots of this is you may end up with a mixed use loan (some deductible, some private). This means you must be VERY careful about calculating the deductible portion of the interest

AND also, you cannot selectively pay down the "private" part of the loan.....which makes things even more complicated, and generally makes your accountant sad because this can lead to a masive amount of calculations to ensure you are not overcooking your tax deductions

SOOOO I advise people to strive to get a stand-alone loan for the deductible stuff where there is no shandying of private and deductible borrowings.

ie, what Glenn said, mostly:):)

cheers

BC

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