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prepaid insterst

Someone reckons you can prepay your interest on ALL investment loans now and get a tax deduction as part of your tax return for this year.

The person I was talking to seemed to say that if you were making just standard payments that this would count - not manually adding up next years interest and putting that on the loan in advance.

Sounded to good to be true to me - before I embarrass myself again in front of the accountant is this true or not?

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Permalink Reply by Bandwidth on May 23, 2009 at 1:24pm

You can apply to your lender to prepay up to 12 months interst in the urrent year and claim it as a tax deduction. A use of this is where you feel that this year you are going to have a hig income and next year a lower income. If you have a capital gain in the current year then part of that can be "rolled over" to the following year through this mechanism.

I was fairly sure I was going to be made redundant, a while back, and prepaid the following years interest. This meant I paid 2 years interest in the same year and no interest in the following year.

If you do it manually then it will come off the principle, rather than be seen as interest and as such will not be tax deductable.

What you are doing is bringing forward the tax deduction.

Have a talk to your accountant and lender