Is the $11k Early Repayment Charge for breaking my fixed term mortgage on my rental tax deductible?
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The fee for breaking a fixed mortgage - deductible?
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If the loan is tax deductible, the fee for breaking it is also tax deductible.
Note that any contributions made by the same or another bank - whether towards legal costs or unspecified - are taxable, if the loan to which it relates is deductible.AAT Accounting Services - Property Specialist - [email protected]
Fixed price fees and quick knowledgeable service for property investors & traders!
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Originally posted by Learning View PostThanks for the replies. :-)
Sorry the answers above aren't quite right.
As is often the case, it is "it depends".
If you are a cash basis investor, then yes.
If not cash basis, then spread over term of loan.
RossBook a free chat here
Ross Barnett - Property Accountant
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Originally posted by Rosco View PostHi Learning,
Sorry the answers above aren't quite right.
As is often the case, it is "it depends".
If you are a cash basis investor, then yes.
If not cash basis, then spread over term of loan.
Ross
Though strictly, the answers above were entirely right, just incomplete.AAT Accounting Services - Property Specialist - [email protected]
Fixed price fees and quick knowledgeable service for property investors & traders!
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sweet, that's 1/3 of $13K coming back to papa...Free online Property Investment Course from iFindProperty, a residential investment property agency.
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Actually it is pretty easy to be non cash basis.
1) If income or expenses (ie interest) is over $100,000
2) and Value of all financial arrangements (ie loans) is over $1 million
Need to be over 1) and 2) to be non cash basis.
A lot of investors are over $1 million in loans.
As interest rates are so low at the moment, a lot of entities will not be paying more than $100,000 in interest, but there are quite a few that are still. So at 4.5% interest, if your loan is over $2.22 million in one entity, then likely to be non cash basis.
So just something else to consider and be careful of when breaking.
There is a 3rd test for cash basis, but not normally relevant. If difference cash basis vs accural is more than $40,000 then can't be cash basis.
RossBook a free chat here
Ross Barnett - Property Accountant
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Originally posted by Rosco View PostActually it is pretty easy to be non cash basis.
1) If income or expenses (ie interest) is over $100,000
2) and Value of all financial arrangements (ie loans) is over $1 million
Need to be over 1) and 2) to be non cash basis.
A lot of investors are over $1 million in loans.
As interest rates are so low at the moment, a lot of entities will not be paying more than $100,000 in interest, but there are quite a few that are still. So at 4.5% interest, if your loan is over $2.22 million in one entity, then likely to be non cash basis.
So just something else to consider and be careful of when breaking.
There is a 3rd test for cash basis, but not normally relevant. If difference cash basis vs accural is more than $40,000 then can't be cash basis.
Ross
I have one peculiar situation. In March 2016 I incurred a breaking fee of about 10K for switching the mortgage. As I am non cash basis person I can't claim this in IR3 2016 which need to be spread over 2 years which is the term of the loan.
But in June 2016 I did a major restructure with a valid commercial reason and sold the rental property to a LTC. can I still claim the breaking fee in 2017 and 2018 under LTC regime.
Thanks
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It is great to have Rosco and Antohonyacat giving adviceshere. I found it is really helpful.
I break a rental property loan with bank A and re-financedthe full amount with bank B for 2 years with better interest rates.
I am non cash basis. Do I need to spread the breaking fee (negativeBPA) over two years? Does the time length of fixed term with bank B equal to the spread period of breaking fee?Last edited by Eva2011; 19-01-2018, 03:27 PM.
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Originally posted by Rosco View PostHi Saleemn,
Get advice from your accountant, as it depends on the exact circumstances.
As a general note, if the break fee was incurred by you, then it won't be deductible to your LTC! They are two different entities!
Ross
- will the bank insist on a 60% LVR (i.e. 40% equity)?
- if so, will they demand a top up for any such restructure?
- how does one get 100% lending these days on such restructure and how do you do this with 2 banks when there is only one property? Presumably the second bank does not want to hold a second-ranking mortgage. Seen this " The LTC would then borrow 100% (can do with one or two banks!) being $500,000. The interest on the $500,000 is deductible as it is being used to buy a rental property. At say 5% interest, this would be a $25,000 deduction, reducing tax by $8,250 (if at 33% tax rate)."
Any thoughts welcome. Cheers.
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That is where you need to work with a good mortgage broker and accountant! Remember you are still borrowing the same amount, just more of the debt on the rental and less on the personal home. As you quoted above, can be done with one bank or two banks.
RossBook a free chat here
Ross Barnett - Property Accountant
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Originally posted by Rosco View PostThat is where you need to work with a good mortgage broker and accountant! Remember you are still borrowing the same amount, just more of the debt on the rental and less on the personal home. As you quoted above, can be done with one bank or two banks.
Ross
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