I am looking for ideas. We own our home outright. We would like to buy an apartment to live in, but keep our house and rent it. We will need to use the equity in our house to help finance the apartment. ThereforI had hoped to use an interest only loan to keep our house but use that money to help fund the apartment and borrow some extra money for the remainder of the purchase cost of the apartment. Now if I owned one property and simply took out an investment loan for a second it would be simple. It could be negatively geared for tax purposes. But in my case the purpose of the loan would be in fact for my principal residence. Even though the result would the same either way, two properties, lotsof debts!
Is there any way to keep out house (emotional attachment) and use its equity to help purchase the apartment, still gain some tax advantages for our old house which would now be an investment property. I am self-employed with reasonable income, my wife is employed on lower income. Some one suggested a trust in with the old house in my wife’s name only. I do have potential for lititgation on my job, so it reasonable to transfer assets to her to protect them.
Any ideas??? Ta, Sean.
Hi Seanlisa,
As long as the loan is for investment purposes you can use the existing equity in your house to purchase an investment property and still claim all tax benefits.
The problem with transferring the old house would be the stamp duty that you would have to pay. It may provide greater asset protection but would be quite costly. I would suggest that you speak with an accountant about the best way to structure to protect your assets.
I hope this has been of assistance.
Kind Regards,
Cameron Perry
Finance Consultant
F.R. Perry & Associates
Level 13, 30 Collins St
Melbourne VIC 3000
Ph (03) 9662 1999
Fax (03) 9662 2044Cameron is quite correct in that transferring to a trust can change the home to an IP and make the new loan deductible.
However some states allow for the transfer of title between spouses with no stamp duty – call your Office of State Revenue or it’s equivalent.
This means you can “sell” the house to your wife. She can borrow 100% + costs and this loan will be fully deductible as it is now her IP. The money she borrowed can be used to buy your new PPOR.
If this is likely to happen again with the new PPOR perhaps becoming an IP in the future I suggest you take out an 80% loan and place the balance of funds into offset. This then allows the loan to be fully utilised if the property is rented and another PPOR bought.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[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.
seanlisa
I think cameron has misread your post.
“We own our home outright. We would like to buy an apartment to live in, but keep our house and rent it”
In this case under the purpose test the loan will be for a PPOR although an investment property maybe used to borrow against and therefore the interest will not be tax deductible.
I assume that the house in in joint names ? Transferring the property by way of sale to a Trust is a consideration however bear in mind the costs involved in doing so. From the date of transfer you will also trigger a CGT clock meaning if you sell the house in the future you will be liable to pay tax.
As you PPOR it maybe a matter of simply selling it now and borrowing again once you have your apartment for an investment property.
Cheers Richard
Ph: 07 3720 1888
[email protected]
http://www.yourstatefinance.comSpecialising in US & IP finance.
Richard Taylor | Australia's leading private lender
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