Ask Margaret: When are my loan break costs tax deductible?

Hi Margaret,  

This is a question about the tax deductibility of break costs on an investment loan for an investment property. My husband and I had a fixed rate investment loan which we broke last financial year. I am wondering whether the break cost associated with this loan is tax deductible in the year it is incurred, or whether it has to be classed as a borrowing cost for tax purposes and deducted over a five-year period. Also, does it make a difference if the break cost was capitalised into the new refinanced loan?  

Thanks in Advance,  

Kirsten

Kirsten, one of the main reasons why someone breaks a fixed rate loan is because they can get a better rate elsewhere and so reduce their expenses, and this may be the reason why the tax office allows you to claim these costs completely in the year they are incurred.

In addition to this, the interest on the money you borrow to finance the $20,000 will also be deductible, but only while the property is used to produce income.  

Make sure that you have a complete record of the exact costs which you incurred and give it to your accountant in plenty of time to make the allowable claims.

Margaret Lomas is a best-selling author and writes and hosts the popularProperty Success With Margaret Lomas and heads up the panel onYour Money, Your Call, both on Sky News. She is the founder of Destiny.

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