Rising Interest Rates

How does rising interest affect my property loan?

As you know interest rates are rising to combat inflation. Most property investors are aware that the interest paid on an investment loan is generally tax deductible.

But do you know what your tax saving is from the increased interest paid on your loan?

The tax savings you will get from paying interest on your rental property is equal to your marginal tax rate. To best illustrate this, we’ll work through the calculations, comparing an interest rate of 2.5% against an interest rate of 4.5%.

Meet Phillip, he earns an annual salary of $110,000 and owns a rental property that generates an additional income of $23,400 each year. Phillip currently owes $320,000 on the property, with an interest rate of 4.5% per year on the loan. Assuming other tax deductions of $7,000 plus depreciation of $3,000, the impact of interest on Phillip’s assessable income is as follows:

Rising Interest Rates

 

The tax savings from interest paid on your investment increases as interest rates rise, as shown in our example. To gain extra tax savings, you could consider prepaying interest on your investment loan. The interest rate must be fixed and interest only.

 

 


So, first seek professional advice to determine if your circumstances satisfy all requirements. Don’t leave it until next June – start planning now!  
Please don’t hesitate to contact the team at Sciacca’s today. We’d love to help and are always available to answer your questions.
 

Leave a Reply

Your email address will not be published. Required fields are marked *