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Chris The Lawyer
Chris The Lawyer, Lawyer
Category: New Zealand Law
Satisfied Customers: 22897
Experience:  38 years qualified as a lawyer; LLB, MMgt and FAMINZ.
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The equity on the house owned and the current family income

Customer Question

The equity on the house owned and the current family income has opened a way for a family to purchase a second house through refinancing their existing mortgage. The security for the loan from the bank would be over both houses with the bank not earmarking the new loan balance to either house. The existing loan was 100 K and the new loan balance will be 600 K after the purchase of the second house. The family has decided to rent one house and live in the other. The purchase of a second house and the resultant increase in the loan balance was with the intention of renting one of them. The market values for both houses are very similar.
Can the family move into the house of their choice and consider the increase in loan as relating to the house to be rented for tax purposes? This question relates to interest expense charges.
Submitted: 1 year ago.
Category: New Zealand Law
Expert:  Chris The Lawyer replied 1 year ago.
If you are renting the second property to tenants, then the costs of the transaction, and the interest and other costs are tax deductible against the rental income. The costs of the family home are of course not deductible. You would need to calculate the interest cost of the rental house, and likely the best way is to look at what you paid for the property and the increased mortgage. That amount and the interest cost is the figure which you would use.

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