Claiming Home Loan Interest Deductions
Posted on February 1st, 2009
The Home Mortgage Interest is a tax-deductible expense that applies to rental properties, as well as interest on investment property loans. Typically speaking this is the largest deduction that is able to be claimed. Keep in mind that if any of the money has been used for private purposes, then the interest on that part of the loan won’t be deductible. For instance, if you were to only rent one room in the house, the interest is only deductible on the areas of the house that were rented out.
Am I able to claim Interest Deduction on my own home?
The tax rules say that the interest on a loan that you used to buy your home is not deductible since it is private in nature. However, if you were to rent your home out, and this creates income, then the interest will be deductible from the point that your home starts to produce income. For example, if you were to have to move for a job, and rented your home out for the years that you were away, that would count.
Can I claim Interest Deduction before and rental income is derived?
The short answer is Yes. If you buy a home with the full intention of renting the property out, then interest as well as other expenses will still be deductible, even if there is no rent income received. When the tax office looks at your returns, they will take into consideration any time that it may take to make renovations or to look for tenants.
What else is able to be claimed?
You are able to claim interest charged on a loan that you’ve used to:
- Purchase some type of depreciating asset (example: air conditioning) for the rental property.
- If you were to make renovations or repairs on the rental property, such as roof repairs.
- Making a purchase of land on which you intend to build a rental property in the future
What is NOT able to be claimed?
As mentioned above, you will not be able to claim the interest on any private expense, such as money used to pay for a car loan, or if the home hasn’t been bought with the intention to produce any income.
What records need to be kept?
Keep all of the records of all Interest expenses in order to make the proper claim. Legally, keep all your records for 5 years from the date that your tax return is filed.
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