I had a home loan $40,000 for my principle place of residence. After discussing it with a Personal Lender I refinanced this loan to an investment home loan with a new total borrowing of $190,000 which I intend to use as a deposit to purchase an investment property.
Given part of this loan is non investment related (ie. $40,000 from the previous loan) will I still be able to claim the tax deduction for the $150,000 which will be used to finance a purchase of an investment property? Or do I need to have two separate home loan ie. loan A $40,000 (non investment) and loan B $150,000 (for investment).
Ps: The new loan is currently on a 12 month honeymoon rate with the first 5 years interest only payment option.
you will be able to claim the 150K as investment and the 40k will be as is.
Of you can be shonky and claim the lot, and just pray you don’t get caught.
Byronent
Adelaide SAThanks..
from reading the “More wealth from residential property” By Jan Sommers, it states that it was imperative that the loans are separate…I was getting a bit concerned!Just curious, how would the interest charged get spilt for the tax claim?
Cheers
Hi Hippo,
Jan Somers comments are all about making your taxation easier and to have your dollars working more effectively.
Under the current arrangement your repayments are apportioned over the $190K – in essence this means both your loans are decreasing in value. This is not a bad thing but you would be far better off splitting the loans into two parts – $40K for PPOR and having this as a P & I loan and the second part of $150K and having this as I/O.
I would also link an 100% offset deposit account to your PPOR loans so that all of your spare money and income helps further reduce your non-deductible PPOR interest.
Such an arrangement also makes it nice and clean for accountants, ATO and your peace of mind.
However under the current mixed structure you have approx 21% (40/190) of the interest is non-deductible and 79% (150/190) is deductible.
These portions will remain for as long as you have this structure in place. Even if you inherited $10K you cannot say ‘I’ll use that $10K to put towards my home’ it is apportioned over the whole loan in a 21/79 split.
Derek
[email protected]Property Investment Support Available.
You should have Loan 1 – 40k and Loan 2 – 150k. This should be a simple split and will simplify tax time.
Also, you should not be paying anything on the 150k until you actually use it. I got the impression you were paying interest on this. You should have an offset facility.
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[withstupid]
The forumite formally known as Big RobIt can get complicated at tax time when working out interest portions. Have you looked at a Tax Ruling that covers poritoning of interest?
eg. TR 2000/2. Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilitiesTerryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | 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
do what derek says, it’s easier than splitting the loans now, and next time you’ll split them.
Thanks everyone for your response.
I now have a better understanding of loan structure and will be more careful when choosing the lender.
I am in the process of getting the loan spilt into 2, both will still be classed as investment home loans, however the $40K will now be P & I, whilst the remainder will be I only.
Thanks again.
Cheers : )
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