Tax times in Australia always have many individuals wondering whether they can claim mortgage interest on their tax returns. Have you ever thought about it? If so, this blog post is for you.
We will give you a breakdown of how mortgage interest works and how it can impact your taxes, keeping in mind that it’s claimable.
Understanding mortgage interest deductions
Understanding when and how to claim mortgage interest can help you save money for other uses.
When you take out a mortgage, the loan amount is repaid over time with interest, usually calculated as the percentage of the remaining loan balance.
Sometimes, the fee paid can be deducted from one’s taxable income, lowering the amount of tax one owes.
It is essential to know that not all types of mortgage interest are eligible, so it is necessary to understand the rules before you file for them.
Who can claim mortgage interest on tax returns?
In Australia, you can only claim a tax deduction for a mortgage interest on a home loan if the property is used for income-producing purposes.
If you have a rental property or use your property for business purposes, you can claim the interest on your mortgage as a deduction.
However, mortgage interests do not apply to primary residences; you cannot file for a tax deduction if you live in that house.
This is because the ATO does not allow tax deductions for interest on loans on properties that owners occupy.
The following scenarios are instances where mortgage interest can be claimed;
1. Investment property
You can claim interest on investment property if you own it. The purchased property can be a rental or any property you bought and want to sell for profit.
2. Business use (Home office deduction)
If you use part of your home for business purposes (home office), you can claim a portion of the mortgage interest.
So, if you use 10% of your home for an office, you can claim 10% of your mortgage interest as a business expense.
3. Property used for both personal and investment purposes
When renting a part of your home, i.e., a room, you can freely claim for a deductible, which should amount to the proportional part of the property rented out.
4. Refinancing for investment purposes
If you ever consider refinancing your home loan and using the additional funds for investment purposes, such as buying rental property, you can claim interest on the additional loan amount.
How do mortgage rates impact home loan costs?
Knowing the current rates is always a good idea before buying a home or refinancing your current mortgage.
This is because even a slight rate change can significantly affect your interest, which can affect your potential tax deductions.
Using a mortgage repayment calculator is always advisable, as you can rely on it to tell you how the differences in rates will affect your payment schedule.
Conclusion
It’s easy to claim mortgage interest on your tax return in Australia, but only if the property you want to claim is used to provide income or used for a home-based business.
Are you confused about whether you can claim mortgage interest? Contact us as your chosen tax consultant, and we will help you claim correctly and maximize your deductions.
