Often when people move to a new home they wish to retain their current home and use it as an investment property in Ad. The challenge is to structure the transaction to ensure as much of the debt as possible is tax deductible.

The tax deduction for interest relates to what the funds are used for, not the security for the investment property loan. Therefore the funds you borrow to buy the new family home are not tax deductible.

Debt transferred to the Investment Property?

Most couples own their home jointly. In this scenario, the higher income earning spouse could borrow the funds to buy the lower income earning spouse’s portion of the current family home. A written real estate valuation of the property will need to be obtained and 50% of the valuation is the amount which the higher income earning spouse will pay the lower income earning spouse for the half share. This full amount can be borrowed and the interest claimed as a tax deduction.

The amount the higher income earning spouse pays the lower income earning spouse to purchase the share of the investment property, can then be invested in the lower income earning spouse’s share of the new property. The lower income earner’s borrowing on the flat will need to reduce to nil.

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