Important Tax Deductions When Refinancing Your Home Loan

August 1, 2017


When tax season arrives, there are two things for which you’ll be overwhelmingly grateful: a good tax accountant and impeccable organisational skills. This is even truer if you recently refinanced your home loan for an investment property. You can deduct a lot of the costs of refinancing, putting more money in your pocket.

Find out what you can deduct when you file your tax return. Don’t miss out on the chance to save money when you refinance your investment property loan.

Can Home Owners Deduct Refinancing Costs?

When it comes to tax deductions, you can only include expenses that help you earn money, such as business expenses. This means what you pay for the property that you actually live in isn’t deductible. There are some deductions you can take on your property if you work from home but in general, your interest payments and refinancing costs for your place of residence are not on the table as potential tax deductions.

What You Can Deduct When You Refinance

For investment properties, the costs involved in ending the initial loan and beginning the new one are tax deductible. Some of these expenses can be claimed on your next tax return while others should be claimed over a five year period.

While there are several property investment-related expenses you can claim, such as repairs and maintenance costs, when it comes to refinancing your mortgage, you can claim interest and loan account keeping fees up front.

You can deduct your borrowing expenses incrementally over a five year period. These include:

What if you sell your property before the five years are up – will you miss out on some of the tax savings? No, if you sell or refinance to a new loan within the first five years, you can claim the remaining deductions on your borrowing expenses right away.

What if You Refinance Your Loan for Your Main Residence?

In most cases, you can deduct your interest and borrowing costs when you refinance to invest in property. However, if you already paid off your main residence and plan on turning your current home into the investment property, you can’t deduct your expenses if you refinance to purchase a second property that will become your new home. Even though you plan on moving into a new home and using your old home as an income earner, technically, it has already been paid off. What you spend to refinance helps you purchase your new home, not a new investment property.

Other than this situation, you should be able to deduct your borrowing costs. For example, if you directly refinance your existing investment loan or if you use the equity from your main residence to purchase an investment property.

The best way to ensure you’re taking advantage of all your tax deductions on your investment property is to talk to a tax professional. Your accountant can help you lower your costs and make refinancing your home loan even more worth the effort.

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