Hi everyone,
Yes I'm new to this site with questions about how to buy a 2nd investment property and get the best tax benefits.
I have an investment loan owing 375000 on a new property purchased 7 years ago where the rental doesn't cover the loan. We live in a home owing 137000 and have accumulated extra payments of approx 300000 which we want to use on another rental apartment/other? and wanted to use the 'accumultaed funds' to do this purchase outright. thus increasing our home loan repayments.
But from my limited knowledge, I'm thinking that this scenario won't attract the same tax benefits as my first investment. Can anyone help explain some options, please? I've been wondering whether my partner purchases this one in HIS name only or does it boil down to having to actually take out a LOAN in order to receive tax benefits? If we don't take a loan, is the rental seen as income and therefore just taxed accordingly?
Any help and guidance would be appreciated guys!<^,,^>
Yes. If you own you home in your own names ie not a trust etc, then there is no benefit on the interest paid on this loan – so you may be better off paying out this loan and getting rid of any other 'bad debt' ie non-deductible debt. You can then get finance to pay for any other investment properties and this is classed as 'good debt' with the costs of interest, rates, insurance, maintenance etc going to offset income.
At present the income (if there are few deductions) just gets added to your income and taxed at your MRT.
With the house you are living in you could get it valued by the bank and take out a line of equity loan up to 80% of the value.
So if the house you are living in is worth say $473,000 then 80% is 349,000 so subtract what is owing 173,000 leaves you with $176,000 you could borrow as a line of equity for investment loan for deposit on another investment property.
Or you could secure investment home against it with living in home value.line of cred it seperates your live in home from an investment purpose loan for tax purposes.
Separating the loans is extremely important and the last thing you should do is look to redraw the advance funds as has been discussed.
Also remember just because the property might start off as negatively geared this will not last forever so discuss with your Broker whether you will be buying it in Joint names, Tenants in Common, or even using a DFT.
Richard Taylor | Australia's leading private lender
I would suggest you keep all money in the home loan and reborrow the $300,000 using a separate loan. This should be IO. Use this for the new purchase and the interest should be deductible. Keep paying the minimum on this loan and the other investment loan (should be IO too) and pour all exess money into your home loan until it is paid off.
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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