My Wife and I own our house in Logan (near Brisbane)and are relocating to a western town for work.
We wish to hold on to our existing property in order to stay in the market.
Is it possible and feasible to buy a new property with finance raised from our existing house which will be rented out. If we do this will it have any effect on capital gains?
We have owned the house since 1978.Thanks for your anticipated advice
Hi Bucko,
You lucky bugger – given that you bought the property pre-1985 you are Capital Gains Tax free for the life of the property as such it will be very beneficial to hang onto it ‘forever.’
As there is no debt on this property you will have no interest claims available to you. Rates, insurance, land tax (shouldn’t be a problem in Q’land with their threshold), repairs, management fees etc will be deductible.
Unfortunately the loan for your new home will not be deductible even if it is secured against your soon to be IP.
As such you may find it cheaper , and a better long term decision, to rent out west and buy another property closer to Brisbane. Two rents will in all likelihood make your portfolio positive.
As an after thought – as your current property pre-dates CGT you may even be able to buy another property, establish this as your new PPOR, move out west and get the 6 year CGT exemption on the new property too – definitely worth a call to a good accountant.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Not a good move, speak to some of the mortgage advisors here..
The interest on your PPOR (new loan) will not be deductible, and your IP will be unencumbered..
Might be better to sell old property and to buy your new PPOR with proceeds, then loan against the equity herein to purchase an investment property..
Or why not ‘rent’ where you are moving to, still keeping your PPOR as an investment in Logan..
As far as CG tax goes, you ‘cannot’ have 2 PPOR ( Principle Place Of Residence), however CGT is only applicable when you sell..i don’t like to Sell my IP’s
My thoughts anyway..
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorWell remembering you will have a CGT exemption on the place wherever you live I think you should consider buying a new PPOR.
The downside is that you will have all your debt against the PPOR and none against your home.
Upside is you will have two CGT exempt properties.
It should be quite easy to raise finance for the new property – esp if you are employed.
All the best,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
TMA
You can also do that with a trust. There is actually a tax ruling on it when done using a unit trust (ie they don’t like it!).
I think Derek is right about the CGT issue. Pre 1985 properties will be CGT exempt no matter what – so you may still be able to class another as your main residence as well.
Terryw
Discover Home Loans
North Sydney
[email protected]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
Ha Ha..you replied faster than me Derek[blink]
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorBucko, don’t ever sell that pre 1985 house. They are like gold… Once gone, you will never get it back.
I like the idea of purchasing a second place in Brisbane, and claiming that as your PPOR. Then rent ‘out west’, which should be covered by the two rents you’ll get on your IPs…
Plus, if you’re not sure how long you’ll be out west, it might be better for you…
For anybody that has property purchased pre 1985, do not designate that one as your PPOR. You don’t even have to keep a record each year of which house is your PPOR, just in the year of sale of the particular property…. cool huh?[specool]
Cheers
MelRedwing, what do you do if your IP (former PPOR, built pre-1985) is negatively geared ( very slightly ), and selling it would give 20K in the hand to buy either a new PPOR or possibly two IP’s?
“Looking forward to the day when I can tell the boss where to go”
Hi Bucko,(& all)
Great question, I was only just thinking roughly the same thing myself……..
We are in Vic and own our currently lived in PPOR purchased in 92, and have a loc loan with no debt….We were thinking of purchasing a larger property for us to live in & fully redraw on the loc to purchase new property and rent out the smaller old property as an I/P…..
As we would be redrawing on the Loc secured over the “i/p”, does this not appear that the i/p still has a loan and then interest deductions etc are claimable. Is this not the case????Please clarify this for me……..
Thanks
Kind regards
Lambsie
[blink]HI Lambsie,
The key point is ‘the purpose of the loan’ as the new loan is to buy a new PPOR then any interest is not deductible.
The issue of where is the security coming from is irrelevant – the purpose of the loan test is the test of deductibility.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Spot on Derek.
This is a very common misapprehension.
A person can borrow against their home for an investment. This loan is deductible.
Another person can borrow against an IP for personal use. This is not deductible.
It doesn’t matter where the money comes from. What is crucial is the purpose it was used for.
The only way around it is where funds are held in an offset account and drawn for personal use (ie new PPOR). This is because the original loan has not been touched.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Myydral, is that $20K after all costs? I don’t see how it will help buy two IPs, especially with all the extra costs that have to go into it….
If I were you I would hold onto the house, and look at saving as much as you can to get a deposit for the next one quickly – or see if you can get some equity out of the IP to help fund the next one. Unless of course it’s not going to increase in value cos it’s a bad location etc. etc.
Cheers
MelOriginally posted by Myydral:what do you do if your IP (former PPOR, built pre-1985) is negatively geared ( very slightly ), and selling it would give 20K in the hand to buy either a new PPOR or possibly two IP’s?
I am not sure of CGT comes into play in your thoughts Mydral but a point of clarification just in case – if the property was built before 1985 but you didn’t own it until after 1985 – you would still pay CGT on the proceeds.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Melbear – you got me there. I’ve never sold a house before, any rough calculations on what I am up for?
Derek – you got me there too, bought in 1998.
“Looking forward to the day when I can tell the boss where to go”
Myydral, if selling through an agent, I think about 3-4% is normal. then you’ve got solicitor/conveyancer costs for the contracts. Then you’ve got the possibility of not getting the price you want….
With buying you have the solicitor/conveyancer costs, stamp duty, inspection costs etc. These things really eat into the amount of money you think you had….
Cheers
MelOn very rough calculations I would end up with about 21K. Loan is 62K, sell ( top price ) of 89K. Still a lot more that I thought.
“Looking forward to the day when I can tell the boss where to go”
Hi Knuckles here
I also am in the process of purchasing a new property which will be my residence.
I will keep my existing home to rent out it is positively geared and i have a mortgage of 80k on it.
Is the interest on the 80k deductible?
What other options do i have with my new porperty to make it also deductible?Is setting up a company or trust a possibility?I already have a mortgage on the land so i’ve already limited my options.
Cheers
SRCurley
Knuckles,
The loan against the new IP ($80K) will be deductible.
Unfortunately the loan against the new PPOR will not be.
Some people buy through a trust then rent from that trust to arrange for deductibility. You may well lose the CGT exemption though.
Best to talk to an accountant – this can get quite complex and lots of room for mistakes.
All the best,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
How do i have a CGT exemption on my new property is it because it is my place of residence and not a IP?
Do you only pay capital gains tax on investment property? I am planning to buy more +Cash flow IP’s
and was planning to setup a trust to do this still educating myself in the best structure for me.SRCurley
How do i have a CGT exemption on my new property is it because it is my place of residence and not a IP?
This is the reason.
As far as trusts go – you really need t ospeak to an accountant.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
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