Many people wonder whether it is possible to claim a tax deduction on their home loan interest. When delving into this subject, you need to know a few essential factors and common traps that you must avert.
Understanding the tax deduction on the mortgage interest
Simply put, it is a deduction you can get on the interest charged on the home loan. It occurs just in case the property you purchased with your loan creates a taxable earning. Here the investment properties have a chance to qualify, but there is zero deduction for the interest on the family house.
One of the fundamental tax rules as you are borrowing for funding the investment property, is that the interest charged on the mortgage are considered tax-deductible when the principal repayments aren’t. The tax deduction on the interest is a fraction of all that makes the property a lucrative investment for several people. It is because it is an essential element in negative gearing. It is the capacity to offset the losses against another earning on the tax return.
Is it possible to claim mortgage interest on your tax?
When a property is generating accessible income, you can get the mortgage interest on the taxes as you are completing the tax return. Just the interest component directly associated with the investment property is considered tax-deductible. When you pay the interest and principal on a loan, chances are you will have to assess the interest aspect each year depending on the loan statements.
Other than the interest associated with the property acquisition in Hobart, TAS, you have the chance to claim the deduction for the loan interest. It is usually not possible to claim the deduction for the loan interest that gets taken out for buying the land where the property gets built till such time the property gets complete and gets marketed for the rent.
The standard traps in the mortgage interest tax deduction
Every year, the ATO (Australian Taxation Office) concentrates on relevant audit activity on the claims for the interest deduction, as most of them are false. Here are some of the usual traps that you must know about or discuss with a home loan broker in Hobart:
- It would help if you didn’t mix the private and investment borrowings.
- Ensure that the interest claims get divided correctly on the properties that are jointly owned.
- It would help if you didn’t claim the interest for the time in the investment property when it gets utilized for private purposes. For instance, when you spend a vacation at a holiday home that gets rented out.
- It would help if you weren’t using any investment loans for private purposes, like renovating the family home or purchasing a new car.
- It would help if you didn’t claim any interest on the family home or any other property that doesn’t get used for income-generating purposes.
These are a few of the necessary factors that you need to know. If you wish to have access to more details and guidelines, you can get in touch with a broker and get all your doubts cleared.
