Browse Forums Home Finance 1 Nov 22, 2012 4:01 pm I can't seem to find an answer to this question on the forum, so hopefully someone can help me. I live in Melbourne and I have an investment property that has been rented out for a while. Let's say, I owe $500,000 on that house and interest payments are at 5%. This means the interest on the loan is $25000 a year. If I get rent of $15000 a year, that means that $10,000 is tax deductible through negative gearing. My question now is this... If I knock down the house and spend another say $500,000 building a new house on there, is that extra $500,000 that I spend on the house also tax deductible if: a) I continue renting after the building is complete b) I decide to sell the house after the building is complete. So if I had to pay $500,000 up front for the house (just to simplify calculations), I can claim a tax deduction of the interest paid, that is 5% x $1m ($50,000 tax deductible)? And because the house is not being rented, it has no income does that mean I can claim a tax deduction on the full $50,000? Re: Tax deductible if building an investment property to sel 2Nov 22, 2012 6:13 pm Probably better that you direct this to an accountant, so they can have a full overview of your situation and advise the best outcome. Re: Tax deductible if building an investment property to sel 3Nov 23, 2012 10:22 am Just found out from my accountant... if anyone is interested, the interest paid on the cost is not tax deductible during the construction. Instead it adds to the cost price of the property. The interest only starts becoming tax deductible from the day it is placed on the rental market. If the property is being sold after completion, then the full cost price is taken into account in the capital gains tax calculations. Re: Tax deductible if building an investment property to sel 4Nov 24, 2012 12:50 pm Dragonhawk, I have seen this before. Your accountant is incorrect. If you're intention from the start is to rent as an investment and it doesn't take too long to build, then you should be able to claim the interest during construction. There was a taxation ruling that came about a few years ago that addressed the above. Google Steele v FCT. Have your accountant review that. Cheers Tom Re: Tax deductible if building an investment property to sel 5Nov 24, 2012 2:28 pm Tom is correct. However, please be careful about this claim for the associated costs of the construction. If you finish building and then decide to move in to it instead of using it as a rental, then all of those claims you made are null and void. Your tax return will have to be amended to remove these claims and then you will have to pay tax back to the ATO. Re: Tax deductible if building an investment property to sel 6Nov 24, 2012 8:36 pm Ok, I'll let him know about the case. What about if we decide to sell instead of rent? Can we still claim the interest payments during construction? Re: Tax deductible if building an investment property to sel 7Nov 24, 2012 11:36 pm Same as the rental answer. Need to prove to the ATO in case you get audited that the intention was to rent the place before you decided to sell it. The property history as a rental, taking out of an investment loan, and the engagement of an agent to find tenants once built would go a long way to showing that. You need to be wary that when demolishing an existing house and building a new one, the lender will take value of the land without the existing house and the construction costs as it's total value for calculating LVR. So it might be higher than you initially thought. Cheers Tom the exemption applies only to your principal place of residence - so you must live in it. The 200 days is continuous. You also have to apply for the exemption. 2 13438 If it's your primary residence then there is no tax deductions to be made. 4 125825 Use a product like Equisol's Vitalise to clean the deck then coat with a penetrating timber oil. It will look 10 years younger and add value to your home. Visit for… 1 16634 |