My husband and I own our house in Victoria which has been paid off but we left the loan account open. Recently we bought a new house nearby which we will move into soon. We decided to keep the current house as an investment property. We transferred the current house totally to my husband's name since it will be rented out. We revalue the current house so that we will get a higher amount to help pay some of the loan on the new house. So we got a loan for the new house and a new loan for the current house under my husband's name.
I am just wondering whether we will have any problems with the interest from the new loan on the current house as a tax deduction when we rent out the house? The new loan on the current house has not been redraw as we have not settled the new house yet.
Thanks for the advice
If you have totally paid off the loan on your current PPOR and then redraw that money to buy a new PPOR the interest on the loan will not be tax deductable. It is the purpose of the loan that determines whether it is tax deductable of not, and redrawing money from a loan counts as new borrowings. Because the purpose of these new borrowings is to buy a new PPOR, then the interest is not tax deductable.
It pays to set up your finance correctly in the first instance- If you had instead paid the funds into a offset account attached to your loan instead of into your loan itelf, you could have potentially saved $6750 per year (based on a $300k loan, 7.5% interest and a 30% marginal tax rate) ad potentially much much more based on your actual borrowings and earnings.
Cheers,
LukeThanks for your advice. We realised this a bit too late but I guess better to find out now than to think that we are able to claim the interest as tax deduction for a whole financial and then have a whole lot of other complications.
We have decided to transfer the property back to myself 90% and my husband 10% and reduce the loan to the minimum that we require and pay it off as quickly as possible We will be positive gearing but I guess it would be better than in the situation I mention above.
Can anyone recommend a good tax accountant in Melbourne?
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