Let's say you have you PPoR mortgage, of which you still owe $200k.
You also have an IP mortgage owing $200k, but the property is valued at $500k (i.e. you have $300k equity).You want to use the equity in the IP to pay off your PPoR mortgage completely.
Option 1: Borrow $200k against the IP, and pay off the PPoR mortgage. In this case the 'purpose of the loan' is for private expenses, and hence the interest on the loan isn't tax deductable.
Option 2: Sell the IP (making $300k profit), pay off the $200k owing on the PPoR, use the $100k remaining as a deposit on another IP (or buy back the same one!). In this scenario, you have completely paid off your PPoR loan, hence all your other loans are for 'investment purposes' and are fully tax deductible.
Have I got this correct?
It seems that the two situtations have quite different tax outcomes (terms of deductability of loan interest), yet both options result in very similar 'asset outcomes'.
Obviously I have neglected the CGT effects and the sale/purchase costs, so it's probably a bit hypothetical.
But I just wanted to see whether I've got my facts right with the two options.Cheers,
Hugh.Thats pretty much it.
Selling could save you years of undeductible interet – but cost you stamp duty, CGT, agents fees and loan fees.
Another option is to sell the home and live in the investment – avoid CGT.
You may also be able to sell your half of the house to your spouse, or sell the whole place to a trust you control. That way you avoid the agents fees and get to keep the property while getting some cash out of it to pay down other loans.
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
If you also want to get rid or reduce most of that capital gain you buy another IP in the same financial year in the month of June ideally and take out a interest only loan prepaying the interest a year in advance. This can be offset against the capital gain.
I think
Option 3: Dont pay anything toward your investment property(even interest). So your interst in your investment will go up therefore deductions.
Use rent from your IP to pay off your PPOR sooner, hoppefully knock it off in 2 – 3 years.
Any one has any thoughts or comment about my option.could work if the dominant reason isnt the tax benefits.
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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
