We owe $80K on our Principal Place of Residence valued at $300K.
We want to move and buy a new PPR – a new loan of $350K to cover costs etc.
As we have equity we will keep and rent out our current house but of course, you can’t have two PPR’s. So our thought is that we re-finance our current house, use the funds as a deposit on the new PPR, and convert our current house to investment property status, claiming tax deductions etc. (negative gearing)
Idea being we separte our personal and investment debts – we minimise our personal debt by taking as much equity as possible out of our current house (which is becoming investment debt) and putting it down on the new PPR.
A few lenders have welcomed us with open arms, a conservative accountant has told us that we can’t take out our equity for personal use, then claim our previous PPR as a tax deduction.
Who really knows? Is there a better way?
“If you don’t ask, the answer is always NO!”
Originally posted by dman66:A few lenders have welcomed us with open arms, a conservative accountant has told us that we can’t take out our equity for personal use, then claim our previous PPR as a tax deduction.
Hi Dman,
You are getting two different answers as the two parties involved offer two different services – sure the brokers are welcoming you with ‘open arms’ – you represent a solid lending client and there should be no troubles getting a loan.
On the other hand the accountant is looking at what your proposing from a taxationpoint of view and – your accountant is right. The purpose of the new loan is to buy a house for you to live in and as such there is no deductibility for these expenses.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
You can claim the interest on the $80K.
If you increase the loan on the new IP to buy a PPOR you cannot claim the increase as the purpose of the loan is to buy a home.
Hope this makes sense.
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985NODOC Loan – 65% Loan – No questions asked! 6.85% Rate!!
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks guys. So lets make sure I am clear on this. Our current home is our PPR until we purchase the new house using the cash from the re-financed loan. At this point we then have to declare one property as an investment property.
So thinking caps on, if we can’t convert our old place to an IP and negative gear, what is the best way financially to do this deal?
“If you don’t ask, the answer is always NO!”
Hi Dman,
Your accountant is correct,Outlined below is One option to help minimise non-deductible debt on the purchase of the new PPR,
Please note, this is depending on individual circumstances, and assuming you intend to purchase more investments in the future.
Step 1 (option A)
Refinance current PPR soon to be an IP, with a split loan at 80% LVR
$300K @ 80% LVR = $240K less current loan of $80K = $160K
(Split 1) $70K this is your 20% deposit on the new PPR, (this is non deductible debt)
(Split 2) $80K payout of current loan, and $90K remaining for future investments
(Total deductible debt $170K)Step 1 (option
Refinance current PPR soon to be IP, with split loan at 90% LVR.
$300K @ 90% LVR = $270K less current loan of $80K = $190K
(Split 1) $70K this is your deposit on the new PPR (non deductible debt)
(Split 2) $80K payout of current loan, and $120K remaining for future investments
(Total deductible debt $200K)Step 2
New PPR purchase $350K.
Arrange a new PPR loan with a 100% offset attached.
80% LVR = $280K + 20% deposit $70K from split 1, interest is calculated on $350KStep 3
Place the $120K from split 2 into the 100% offset account, interest is now calculated on $230KI hope this helps.
Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:1800 820 500
VICTORIAPLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
Thanks again for the ideas.
Only problem is that taking away our ability to keep the investment debt high and the personal debt low is that we can’t service the personal debt! I think the difference works out at $170pw.
Could I sell the PPoR to my wife, or even a trust?
“If you don’t ask, the answer is always NO!”
Selling to a Trust could be an option,
I have replied to your e-mail, good luck.Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
I replied to a similar post a few weeks ago.
You could sell you share of the house to your spouse, and he/she could borrow to do so – deductible debt. The money released would be tax free and could be used for your PPOR. You may not even have to pay stamp duty on the sale in some states.
or it may be better to sell to a trust as Steven suggested.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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