Debt recycling is a strategy of progressively converting non-deductible personal debt into deductible investment debt, without increasing total borrowings.
Debt recycling is a strategy of progressively converting non-deductible personal debt into deductible investment debt, without increasing total borrowings.
Interest on your own home loan is not deductible. Interest on borrowing used to produce income generally is. Debt recycling gradually shifts the balance from the first category to the second.
The mechanism typically involves repaying home loan principal and re-drawing an equivalent amount, through a separate facility, for an income-producing purpose.
Deductibility depends on the purpose the borrowed funds are actually used for, not on what the loan is secured against. Borrowing secured against your home but used to buy a rental is generally deductible. Borrowing secured against the rental but used to buy a car is not.
Mixing purposes in a single facility is where this goes wrong. Once funds are commingled, apportioning interest becomes complex and IRD scrutinises it. Each purpose needs its own clean facility with a clear audit trail.
This is not a way to increase leverage. Done properly it changes the tax character of existing debt, not the amount.
It requires a proper accountant, not a template. The mechanics are simple to describe and easy to execute badly. Getting it wrong can cost you deductions on the whole facility.
Last reviewed: 1 August 2026 · General information only, not financial advice.
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