Hi, my husband and I have recently inherited a unit which is paid off, worth about 325000, which is being rented out. We have a house which we live in worth about 350,000 which we owe 260,000. We also inherited about 50,000 cash. Would it be worth paying off our mortgage and taking out a mortgage on the investment unit for tax reasons ie to negative gear? Or should we keep both places as investments and buy another to live in and use the rent from the unit to help pay off our mortgage? I have just had our second child and am not working so our income is not huge at the moment (am on paid leave and will return to work part time later this year). Hope this makes sense we are very new to this and have no idea where to go from here… thanks!
I may have misunderstood your question so I will rephrase it.
You are suggesting borrowing money from the investment property Loan or equity loan and then using this loan to pay for your PPOR non investment mortgage.
You cannot claim negative gearing as the purpose of the loan is not for an income producing purpose but rather to pay off your PPOR mortgage.
A better move might be to get an offset account attached to the PPOR mortgage and put the 50k in it plus the rental income and your wages. Go and ask your bank if this is possible and if it is worth doing.If you have had a child you may be over reaching your financial situation with two investment properties at the moment and a PPOR.
With the offset account you reduce the interest charged on the PPOR mortgage and if your circumstances improve later on you can take the cash out of the offset account and use it as a deposit for another investment property.
If instead you decided paying off 50,000 off the PPOR mortgage it is more difficult to redraw later and claim the 50 ,000 part of your PPOR Mortgage as an investment purpose.Is it worth negative gearing ?
What max tax rate is your partner on 30% ?
If it is 30% then you have say as an example $10,000 in loss then you get $3000 back
So you are losing $7000 a yearThis doesn't take into account if the investment property is joint owned as if it was you would not be able to claim 50% of the negative loss due to you not having a job with taxable income.
Also I would like you to be aware that the $10,000 net investment property loss or investment shares income loss is regarded as income for family payment calculations or parenting payment by Centrelink. They add the $10,000 back to the assessable income and deem your income for you payment calculation and you actually lose $7000 which is regarded by centrelink as income.
Another thing to consider was the inherited house a PPOR and you are now renting it out. You may need to get advice from an accountant to advise if capital gains tax is liable on the inherited house and what records need to be kept.
see
http://www.ato.gov.au/individuals/content.asp?doc=/content/36596.htmor if the house was an investment house and you inherited it you may need to get advice from an accountant to advise if capital gains tax is liable on the inherited house and what records need to be kept.
You should seek proper advice as there are various CGT implications. If the property was previously a owner occupied property, or was purchased prior to 1985 it may be possible to sell without CGT implications – but I think this must be done within the first 2 years of transfer.
So it may be an idea to look at the figure for you to sell that property and use the proceeds to pay off your current house. Then you could reborrow to buy another property. This should save you heaps of non-deductible interest on your own loan and save you CGT, but will incur stamp duty. so you have to assess if it is worth it.
If you just take out a loan on the new investment property and pay off your current home loan the interest won't be deductible (as it is a private expense, borrowing to pay private debt).
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 agree with Terry, I think you should get proper advice on the situation. There are some complex issues in there that need to be worked through. Additionally, an hour or so with someone working through all the issues and having them explain the concepts to you will be an invaluable use of your time.
From a financial perspective, you have a one off opportunity to get it all right, and this really will allow you to take things to a different level, so get some good independant advice (don't let a financial adviser talk you into investing into a product) and really take your time on this one.
Rather than thinking what you can do with your house or the money or the other property, try and ascertain where you want your life to go – and then work out a way that your assets and situation can be structured to suit where you want your life to go. It's a more top down approach, but I find that works well.
Best of luck!
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