Top 3 ways the Interest limitation rule of residential investment property can affect you

From the 2022 Financial year onwards, the rules have changed on the deductibility of interest when it comes to rental properties. Here are 3 ways how the interest limitation rule may affect you if you own a rental property!

ONE…

If you acquired a property before 27 March 2021, then your interest deductions on loans will be phased out at 25% per year over 4years – until 31 March 2025. Ultimately, this means the amount you claim each year for interest will reduce slightly every year, until you can no longer claim it. This means your Rental property profit will likely increase in comparison to past years.

TWO…

If you acquired a property after 27 March 2021, then you will not be able to claim any interest deductions on your loan as an expense. The exception of this is if the property was acquired by an offer made on or before 23 March 2021 that could not be withdrawn before 27 March 2021. If this is the case, then you’ll be allowed the deduction as per note ONE above.

THREE…

The total interest expenses are allowed on the taxable sale of the residential property; however, deductions may be limited to the gain on sale of that property.

When it comes to property, it can be confusing to understand, but definitely an area where you need to be 100% confident with the tax matters! If you have a residential property and would like to understand what you can and cannot claim further, just reach out! We’ll be happy to answer your questions.

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