Home Loan Interest? Find Out Tax Relief (2026)

You're looking for ways to maximise your tax return, and you wonder if you can claim your home loan interest. With the complexities of taxes, especially when it comes to home loans, you might feel a bit overwhelmed. Let's unravel this for you.

Understanding Home Loan Interest Tax Deductions

In Australia, the ability to claim home loan interest as a tax deduction depends largely on how the property is used. If you use your property solely as your main residence, the interest on your home loan is generally not tax-deductible. However, if the property is used to generate income, such as a rental property, you may be able to claim the interest as a deduction.

The logic is straightforward: the interest is considered a cost of earning that rental income. Therefore, it becomes part of the allowable deductions when calculating your taxable income. Understanding this distinction is crucial as it directly affects your tax obligations and potential savings.

Current Rates, Requirements, and Options

As of 2026, interest rates in Australia for investment properties typically range from 6.49% to 12%, depending on the lender and your financial profile. When exploring your options, remember that these rates can vary based on factors like credit score, loan amount, and the property's location.

Eligibility criteria for claiming home loan interest on tax include:

• The property must be used to generate assessable income.
• The loan should be used to purchase or maintain the income-generating property.
• You must be the one legally responsible for the loan repayment.

Esteb and Co, with access to a panel of 83+ lenders, can help you navigate these options and find a loan that suits your needs and financial situation.

Steps to Claim Home Loan Interest on Tax

Claiming home loan interest on your tax return requires careful documentation and adherence to ATO guidelines. Here's how you can proceed:

1. Maintain Accurate Records: Keep detailed records of your loan statements and interest payments. This includes documentation showing the property's income-generating purpose.
2. Calculate Deductible Interest: Determine the portion of your loan interest that is attributable to the income-generating part of your property.
3. Complete Your Tax Return: Use the ATO form to declare your rental income and claim the associated expenses, including interest.
4. Consult a Tax Professional: Engaging with a tax advisor can provide clarity and ensure compliance with tax laws.

Following these steps can help you accurately claim deductions and potentially reduce your taxable income.

Tips and Considerations

When considering claiming home loan interest on tax, keep these expert tips in mind:

• Mixed-Use Properties: If your property serves both personal and rental purposes, only the portion of interest related to the rental period is deductible.
• Interest Only Loans: Consider the benefits and drawbacks of interest-only loans for investment properties, as they can affect cash flow and tax deductions.
• Review Annually: Tax laws can change, and so can your personal circumstances. Regularly review your situation with a tax professional.
• Leverage Professional Advice: At Esteb and Co, our team can guide you through the complex landscape of home loans and tax deductions.

Frequently Asked Questions

• Can I claim interest on my home loan for my primary residence? No, interest on a loan for your primary residence is not tax-deductible.
• What happens if I refinance my investment property? You can still claim interest deductions, provided the loan is used for income-generating purposes.
• Is all the interest on an investment loan deductible? Generally, yes, if the loan is solely for the purpose of generating income.
• Can I claim interest on a property that is temporarily vacant? Yes, if the property is genuinely available for rent and intended to generate income.
• How do I apportion interest for a mixed-use property? You'll need to calculate the interest based on the proportion of the property used for income generation.
• Can I claim capitalised interest? Yes, capitalised interest on an investment loan is deductible.
• What if my property is overseas? You can claim interest if the property generates assessable income in Australia.