Hi everyone,
I need advise on what to do with my mortgage.
I purchased an apartment 5 years ago (was my PPOR for the whole 5 years). In December last year I purchased a house which is my new PPOR. The first place is worth approx $500k with a $200k mortgage. I have a new mortgage for my new property and would like to turn 1st property into IP (if possible). Can I transfer equity from 1st property to 2nd, and if so is there limits as to how much?I spent 25 minutes on the phone to my accountant but was left totally confused!, so I'm hoping to get some other advise/options from people who are dealing with property everyday.
Ben
There are no problems with turning the first property into an IP, the current loan would most likely be tax deductible ($200k).
As you have not specified whether you have paid IO or PI on the first loan, I will assume that it was PI and you have built up equity in this property through loan repayments and capital growth. If you borrowed against this property for another IP the new loan would be tax deductible as well.
As you have borrowed for a PPOR the new borrowings would not be deductible (unless the funds came from an offset account not from equity on the first property).
You may financially be better off staying in the apartment and using the house as your IP if the deductions are going to be greater (and you can still live in this unit).
Hi Scott No Mates,
Thanks for your answer. Can I increase the loan on the IP property and put it into my PPOR,
In short, to increase the interest payments on the IP and therefore maximise tax benefit?
At the moment I'm paying a a lot more interest on my PPOR than the IP.ATO looks at the purpose of borrowings. So increasing your loan on the IP to pay for the New PPOR would be personal use = non deductible.
A way around this is to sell the property to your trust or partner. eg if you own 50/50 you or your partner could buy out the other party. They would need to borrow to do this and the borrowing would be investment purposes. Money released would go into the new home. But there would be stamp duty payable. So you must work out if the savings are worth the cost and hassle.
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
I have only recently purchased the 2nd property (house) and my 1st property has not yet generated any income (still vacant as I only moved out last month)so can I take out the equity before it becomes an IP? Both properties are 50/50 purchased with my wife.
Hi Benn
Regretfully not.
As mentioned by Terry one of the strategies is to consider selling the property into a Trust structure borrowing the full valuation and then using the difference between 100% of the valuation and the loan balance to pay down your PPOR.The entire amount of interest then becomes a deductible expense.
Whilst there is stamp duty payable it depends on a couple of factors as to whether it is a viable transaction but is certainly worth doing the numbers on.
Richard Taylor | Australia's leading private lender
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