Hi All,
I need advice on the following situation:
Current:
I am 25, partner is 23. We have a PPOR which I paid 127K for in 2001, which could probably sell for 200K now. The bank valuation would probably be 160K+. We have 95K left on the mortgage, so I have a bit of equity in it. The repayments are just over $700/month.
I earn approx 65K a year and my partner 30K. We have been paying every cent into the mortgage since we bought it…Future:
This house is too small for us and we wish to buy a new PPOR next year for about 260-270K and move into it.
The current PPOR we wish to rent out as our 1st investment property once we move into the new PPOR. I have been advised we could easily get $180/week in rental income from this property.We have been advised and have read, that we should pull all our equity out of the current loan and dump it into a bank account (ING) and just pay the minimum on our current mortgage and put all the cash we normally put into the loan into the ING to save for a deposit for our new PPOR. Is this ok?
Once the time comes, I will refinance the IP to access the increase in equity we have over this home and then invest this equity into other income producing assets, shares, property etc. I believe this to be ok as we would be using the equity from the IP for other income producing assets, and therefore claim the interest. Whereas you could not do the same by putting the cash into the new PPOR.
Couple questions….
Is this the best way to do this? I would really like to keep our current PPOR as an IP as it would be a great IP!
Is it ok to pull everything we can out of the current mortgage (around 15K) and put it in a sepearate account for 8 months, then use that as a deposit for the new PPOR? Does this have any effect on the “to be” IP loan?I probably have left out some details but, I would love to hear everyone’s opinion!
Cheers,
[
]I’m not quite sure i get what your trying to do but…..
when you take the money out of the ppor #1 and into an ing account for 8 months what benifits does this have?
Why not take it out when you need it for the ppor #2.
If you redraw against ppor #1 for investment that loan is tax deductible but the rest (remaining on the house) isn’t.
I hope this kinda answers what you’re after. A good accountant will also be worthwhile, they’ll give the best advice.
Josh
If you redraw against ppor #1 for investment that loan is tax deductible but the rest (remaining on the house) isn’t.
JoshOnce PPOR #1 becomes IP #1 will the interest on what was PPOR loan, but now IP loan become tax deductible?
Yes – if the new IP is producing taxable income then the loan will be deductible.
cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
We have been advised and have read, that we should pull all our equity out of the current loan and dump it into a bank account (ING) and just pay the minimum on our current mortgage and put all the cash we normally put into the loan into the ING to save for a deposit for our new PPOR. Is this ok?
Might be too late to do this. Pulling out the equity creates a new loan unless it was in offset account. As you understand the purpose of this new loan determines it’s deductibility.
Once the time comes, I will refinance the IP to access the increase in equity we have over this home and then invest this equity into other income producing assets, shares, property etc. I believe this to be ok as we would be using the equity from the IP for other income producing assets, and therefore claim the interest. Whereas you could not do the same by putting the cash into the new PPOR.
This looks right to me.
Hope this makes sense.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks All!
MH, when I say pull all the equity out of my current loan, I guess I really mean, redrawing the extra repayments I have put into the loan, which will not change the loan. Am I right in saying there is a difference between redrawing equity and redrawing extra repayments?
So, essentially I will just be redrawing from the current loan.
Will the loan still be fully tax deductable when PPOR#1 changes to an IP?Will the tax man say “Hey, whats this 15K you’ve redrawed a year ago?” once the property becomes an IP?
Thanks again
Damon,
Sorry mate but redrawing creates a new loan in the eyes of the ATO. They see you as having paid down the principal then any redraw is a new drawing on that principal. No different to drawing on the equity. So the purpose of this redraw will determine the deductibility. If for a new PPOR then not deductible.
This is why Offset accounts are great as they preserve the original debt..
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Ok, it seems I have a problem.
Ay ideas on what I should do? (I will be seeing an accountant before I do anything)
What if I skip payments on my current loan? Since I have an extra 15K in the loan, I may be able to skip payments on the loan for a long period. I can then pay all money I would normally put into the loan into the ING account.
Would the interest on the entire loan still be tax deductable?Basically, I need a way of transferring that extra money out of the PPOR loan, but still being able to claim the interest on the entire loan once it becomes an IP.
[
]Some people change the ownership of the PPOR and borrow 100% of the new value – to a spouse or a trust. This means paying stamp duty again. But it is also CGT exempt.
I think at this stage you need to be talking to a savvy accountant.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Agreed, I will need a savvy accountant.
I live in Adelaide, do you know of good ones here?
Cheers
Damon
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