Hi
It seems this question has been asked many times before however was not sure what options I had if I want to keep the current house.
Wife and I own a house with very little mortgage left and would like to buy a new place (with 100% loan) and keep the old place as a rental.
My understanding is that I can't transfer the debt across to the current house? If so, what are the other options?
I was thinking of;
1. Buy my wife's half of the house, but does that mean I only get 1/2 the negative gearing benefits?
2. Sell the house
3. + gear but I assume that would result in having to pay income tax on the rental income as well as no benefits to the loan costsCheers
Faulkner
What is your marginal tax rate?
If you have say a 30% tax rate negative gearing will cost you.If say you spend $100 you get back $30 so if you do not achieve capital gain you are $70 out of pocket on every $100 you spend.
If you were positively geared and earned $100 you pay $30 and have $70 in your pocket on every $100 you earn.
That $70 could help pay off your new main residence home loan !fmacdonald wrote:HiIt seems this question has been asked many times before however was not sure what options I had if I want to keep the current house.
Wife and I own a house with very little mortgage left and would like to buy a new place (with 100% loan) and keep the old place as a rental.
My understanding is that I can't transfer the debt across to the current house? If so, what are the other options?
I was thinking of;
1. Buy my wife's half of the house, but does that mean I only get 1/2 the negative gearing benefits?
2. Sell the house
3. + gear but I assume that would result in having to pay income tax on the rental income as well as no benefits to the loan costsCheers
Faulkner
Thats pretty much it. You can only claim costs assosciated with the investment, so if you borrow to buy half the interest on this half should be claimable.
If you want to keep the house then another option is to sell it to a trust you control – but further tax implications here.
Probably the easiest solution is to sell it and then buy a new one soon after settling on the new property
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 are in Victoria there is no stamp duty on transfers between spouses. I think Terry is right. Unless your existing house will be a great investment you could be better off to sell and then purchase an IP using the equity in your new PPOR
I also forgot to mention another possible way.
Get a LOC set up and borrow to all expenses associated with the PPOR from the date it becomes a rental. If done properly you could even borrow to pay the interest on this small loan. This will free up cash to pay into the new PPOR loan and will gradually help you pay it off faster by decreasing the non deductible debt and increasing the deductible saying you tax.
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
Thanks for all your help. Bit a thinking to do.
We have owned the house for 15 years and for the first 5 it was rented, I assume this makes no difference?
fmacdonald wrote:Thanks for all your help. Bit a thinking to do.We have owned the house for 15 years and for the first 5 it was rented, I assume this makes no difference?
It does make a difference.
The house wouldn't (probably) be CGT exempt for the first 5 years it was rented. So you would need to factor this into your calculations.
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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