Moving into your rental property & accounting issue
Have a technical question here that I want some assurance. Have spoken to my accountant on this but his answer was less than comforting thus hoping some one has clear answer on this.
1. I had a mortgage free home with no investment property(IP)
2. Mortgaged home to buy IP#1 in 2010
3. Re-mortgaged home(to arrange revolving facility) to buy IP#2 in 2011
4. Later again using revolving facility, bought IP#3 in 2011
5. Shortly after IP #3 was purchased I changed mind and moved into IP#3 and rented out home instead. So IP#3 had never been rented out.
My accountant told me interest for mortgage on 'home' was originally deductible as the mortgage was raised to buy IPs thus a business expense.
- Now with the situation that I have flipped 'home' with IP#3 and IP#3 has now become a 'home', would the interest on IP# 3 still deductible? Given the interests over 'home' and IPs was all deductible?
- Difference on mortgage amount between original 'home' and IP#3 is around $40k. Does that mean I would not be able to claim interest on this $40k in this instance if so.
You need to get some good advice on this. I can discuss the basics but I don't know your full situation.
Mortgage on original home is zero, therefore the interest deduction is on a zero mortgage, so zero.
Whatever loan was used to buy IP#3 that is now your personal home, will not be deductible. Interest deductiblility generally relates to what the loan is used for. The loan to buy IP#3 is used to buy your personal house, therefore no deduction.
It doesn't matter what the loan is secured over, it all depends on what it was used for.
You could probably restructure to make the interest deducitbile, but not if you haven't.