What exactly is debt recycling?

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

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