Simply put, debt recycling is a strategy that turns your current home
equity into a tax-deductible investment loan.
If like many Australians you bought your home a while ago and have been
slowly re-paying your mortgage debt, and all the while your property has
increased in value, you would now have significant equity in your home.
So my suggestion is to borrow against this unused equity and buy an
investment property.
Previously that debt against your home was "necessary debt” but
re-borrowing or recycling those funds means you now have "good debt” because,
as I just explained, you can use this to buy an appreciating asset that will
bring in cash flow every month.
But here’s the catch – to recycle your equity into good debt, the debt
can’t just be used for anything.
If you borrow against the equity in your home to buy a car or as other
debt used for personal purposes, the interest payments are not tax-deductible.
Just to make things clear, it’s not the security against with you borrow
the money (your home) which determines if the interest payments are
tax-deductible.
It’s the purpose of the loan such as borrowing to invest, which makes
interest tax-deductible.
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Jason Gwerder
Wednesday, 17 March 2021
