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Taxable under the bright-line property rule

If you sell or dispose of a residential property and the sale is taxable under the bright-line property rule, you may add the amount of the interest previously denied by the interest limitation rules to the cost of the property to reduce the taxable gain. 

If this results in a loss, the loss must be ring-fenced and can’t be used to offset income from other sources like salaries and wages. Under that rule, the loss can only be deducted against other taxable gains on other land sale gains. Any excess loss must be carried forward and deducted against other land sale gains in later income years. 

Taxable for other reasons

If the sale of the residential property is taxable under a provision other than the bright-line property rule, the previously-denied interest is allowed as a deduction in the year of disposal.

If the disposal is not taxable

If the disposal is not taxable, you cannot claim the interest previously denied under the interest limitation rules. 

Last updated: 17 Mar 2022
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