Dear forum-members,
We (my wife and I) would be grateful to you, if anyone could provide a great solution to our scenario.
We are living in a suburb (22 km South-West of Melbourne CBD). We have paid off the mortgage of the house we are living in at present.
We bought a block of land in a neighbouring suburb, 1 year ago and now we are building an investment property on it. We're building it with Porter Davis. The way things are shaping up, the investment property is going to much better than the house we're living in at present.
The problem is – if we move in to this new house and start living in it, we would have to pay off this big new mortgage of $550K, and we can't claim that interest on tax.
And to make matters worse, if we give the house (we are living in at present) for rent, we can't do any negative gearing on that. And we have to declare extra income from this rental house.
So, we are looking for a legitimate way of transferring the big mortgage of this investment property ($550K) to our existing house (we've been living in for 7 years – of which, the mortgage is paid off); So, that we can give it out for rent and we can take the benefit of negative gearing. And at the same time, the new property becomes mortgagge-free.
Any suggestions / recommendations would be greatly appreciated.
Thank you in advance.
Hi Yasman,
The purpose of the loan is what determines deductibility, so just transferring it to an investment property doesn't automatically mean it will be deductible.
From the above it seems like spousal transfer is an option for you. This is where you can transfer the ownership between either one of you due to your relationship, and since you are from Victoria pay no stamp duty for the transaction.
Assuming that the current unencumbered property (say it's worth $600K) is split between your wife and yourself it would work something like this.
Your wife or you would buy the remaining 50% interest of the property from the other at market value ($300K). This happens by taking a loan out on the property and paying the other person the funds. If the property is rented out this loan now becomes deductible. The funds can be used by the other person to pay down the loan on the new property that you want to live in reducing that mortgage to $250K. So by the end you have the same total mortgage, but now some of it is deductible.
If the unencumbered property was owned fully by one party, then you can do a 100% transfer and borrow more deductible debt.
Cheers
Tom
If house in VIC one party can sell to the other party at full market value. Probably no stamp duty, and no CGT. Just legals and new loan fees. This will enable you to claim the interest on a loan to half of the value of the house
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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