Most discussions in the media talk about people owning a house and then buying an investment property to negative gear.
However, my situation is a little different in that I currently own a small unit, and want to buy a larger house to live in, and then rent out my small unit.
I have almost paid off the loan on my small unit, but want to use the equity on the small unit to fund the purchase on the larger house.
I thought that I would then be able to claim tax deductions on the full amount of the equity loan, but the ATO indicated that I could not do this because the equity was used to buy my house to live in, not an investment (ie. purpose of equity loan was not for investment).
So can anyone tell me what options I have? I do not want to sell, and need to know what the best option is. Should I redraw the full amount that I can and fund the new house with that, and then claim deductions on the remaining loan (after redraw)?
Thanks all.
In terms of continued tax deductions the balance of the loan on your unit is all the interest that you will be able to claim as any redrawn funds or equity used will be for new new home and as such these funds are not deductible.
Originally posted by chockey:I have almost paid off the loan on my small unit, but want to use the equity on the small unit to fund the purchase on the larger house.
While I understand your reluctance to sell – if selling means you have a significantly lower debt on your new home then it may be an option worth considering.
The advantage you have is that your existing property will be CGT free and as such all profit will be yours to use excluding agents fees and stamp duty on the new purchase.
Is the desire for a new home such that you cannot wait? Have you thought about using the equity in your unit to help fund additional investments? Whether this is an appropriate course of action is dependent upon your goals and plans.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958Another option is to sell your property to your trust or spouse. Stamp duty may be payable. But you could take out a loan to buy an investment, and the funds released could go onto your home home.
Terryw
Discover Home Loans
Mortgage Broker
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
Originally posted by Derek:In terms of continued tax deductions the balance of the loan on your unit is all the interest that you will be able to claim as any redrawn funds or equity used will be for new new home and as such these funds are not deductible.
Thanks for the reply. Wow, it looks like you’re saying that even if I redraw, I can only claim tax deductions on my current balance. So if I have $40K in the balance, and available redraw of $60K, I can only claim a deduction on the interest for $40K not $100K.
That pretty much makes it harder for me to justify keeping the unit.
I was hoping to be able to use the equity to buy the new house, and have a much lower loan amount for the new home, and claim the tax deductions on the equity loan amount.
I think I really need to consider selling now, but it’s not much of a seller’s market anymore.
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