hey kids how are we all, i was just thinking and i thought i would post the question to you guys to see what you think.. my current situwation is this..
IP worth $110,000+ owe $60,000
PPOR worth $170,000+ owe $120,000i earn around 45k a year so would it be worth taking out the equity from my IP and paying it straight into my PPOR as the repayments on the the IP are tax deductable and all that.. this would make my house -ve geared, but i’m paying the intrest on my PPOR with no deductions or anything.. so what do you think?
NEO
NICE ONE BRUVA!! Nice One Bruv! nice one
Neo,
From what I understand, if you take the equity from your IP to your PPOP, that will not be tax deductible, however, that does not preclude it from being a good idea.If you take interest only and take up a facility on your IP to 80% LVR, this will give you $28k to reduce the loan on your PPOP, which you will be paying P&I.
You may also be doing this anyway, if you have an offset account against your PPOR, you can have all pay & rent paid into loan, drawing out ineterst only payment to IP when due each month. Thereby reducing your non tax deductible interest on your PPOR.
Of course, if you take out facilities to 80% on both, you would have access to $44k to invest in another IP??
James
PS What is neologism??
its my msn messenger name, it means changing words or phrase.. something like that.. so my name was Neologism the everyday i would have a little quote of the day type thing.. but i dont use messenger anymore..
NEO
NICE ONE BRUVA!! Nice One Bruv! nice one
Are you talking about a redraw arrangement or refinancing?
If redraw, then just do it.
If refinancing, I think this comes down to purpose of debt. On your numbers, the $110K you borrowed for your IP was for investment purposes. If you transfer this equity to your PPOR you are using money you received a tax deduction for for non-deductible purposes (or something like that – my brain isn’t working on the detail).
It might work if you effectively sold and bought the IP and refinanced that way, but you’d be up for stamp duties on the transaction.
Sorry that I’m not good on the detail today.[8]
Originally posted by georgisj:Neo,
If you take interest only and take up a facility on your IP to 80% LVR, this will give you $28k to reduce the loan on your PPOP.
James
Unfortunately, as a rule of thumb, it is the purpose of the loan and the requirement that it be ‘income producing’ for it to be tax deductible that mean this arrangement will not permit the extended 28K loan to be tax deductible – so really you don’t gain a lot under this scenario.
At the end of the day the most common way to work the system is to sell your IP (not recommended) or put all available funds against your PPOR by converting IP loan to interest only and setting up an offset account against PPOR loan.
Derek
Neologism,
I was thinking along the same lines myself. However, it is the original intent of the loan, otherwise, you could borrow against your IP’s for lifestyle and claim the tax deductible proportion which the tax department would not allow.
However, I was thinking what if you had some investment properties and purchased another investment property this time to live in at another future time. You use the equity in the IP’s to purchase the new investment property and therefore it is unencumbered. In a few years you move into the investment property (now the PPOR) and can still claim the interest as a tax deduction as it has been shifted to the IP’s first purchased.
Spider
Spider
The problem with that is that if audited, they would go back through the ‘money trail’ to find out what was used to buy it. They would see that the loans that are outstanding on the other IPs were used to purchase the (now) PPOR, and therefore disallow the portion of those loans that was used to finance the PPOR.
It’s all about purpose of loan rather than security used.
Cheers
Mel
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