Interest in Advance

Tuesday, 21st April 2015

Investing in property to create wealth requires strategic thinking. We'd like to take this opportunity to discuss one strategy that could reduce your tax.

As we approach the end of the financial year we recommend all our clients speak with their accountants now, so there's time to take action if required. Once 1st July is here it’s too late, and you could lose the opportunity.

This strategy is interest in advance. When looking for a tax deduction on your investment property before the end of the financial year we know that you can claim interest on your loan, property expenses and depreciation. But, if you are a property investor with tax-deductible borrowings, then one strategy that you can consider is pre-paying the interest on your loan.

The main reason why investors adopt such a strategy is to receive the full amount of the prepaid interest as a deduction in the financial year it is paid. For some investors, pre-paying interest is an important part of a tax minimisation strategy, particularly if their income is expected to be lower in the following year(s).

If this is appealing, you will need to contact your lender or mortgage broker to find out if this facility is available on your loan. Not all lenders offer this facility.

If it is an option, another feature of pre-paying interest is that the loan is fixed for 12 months and the rate is generally lower than the lender's traditional 12-month fixed rate. This can also assist with budgeting for the period that the interest is prepaid.

Remember this is one strategy, so make sure you speak with your tax professional before moving forward.

If you have a question or would like to know more about interest in advance please join us at our next seminar or contact me, I would love to talk to you