I currently own outright a property worth about $300,000, which is my PPOR.
My fiance has a mortgage of $370,000 on her PPOR.
We are getting married next year and I will be moving into her place.
I am going to turn my PPOR into an IP. By doing this I will have a non-deductable debt.
After asking a few questions on this site before it seems the best way to convert this non-deductable debt to deductable debt is,
1. Set up a trust and sell my former PPOR to the trust.
2. Sell my former PPOR to my Fiance and I buy her PPOR.
I understand setting up a trust will protect me later on down the track if something happens to go wrong in the marriage.
What are some of the advantages and disadvantages of the two strategies? What would be the best way to go?
I will appreciate any suggestions anyone may have.
Hi Hugo
Why can’t you turn your Fiance’s PPOR into an IP? You don’t need to do anything then. YOu live in a fully paid for house and convert her mortgage into deductible loan. Just a thought
Cheers
PadmaHi Hugo,
I have to agree with Padmaa – why make something more complex than it needs to be.
From a strictly financial situation you would be better off living in your house.
The downside of this arrangement is that your soon to be wife will be the only one eligible for tax relief as it is only her name on the property titles.
The other keep it simple option is to rent your house and plough the rent into your soon to be wife’s property. Sure you’ll pay tax on the profit from your house but it will help to reduce the non-deductible debt sooner.
Really you need to do a lot of maths (and negotiations with the new wife) to work what is best financially from a long and short term perspective.
For instance my brother-in-law has just bought a very expensive property overlooking the beach. For the first two years they will be renting it out so that they can claim tax and plough all the savings into the loan while it is tax deductible.
Derek
[email protected]
0409 882 958
Property investment advice and researched property in quality locations available.Hi,
The critical issue of turning your PPOR into an IP is that you may lose your CGT exemption.
It may be possible for you in the short term (up to six years – see this link) to move into your partner’s property as the PPOR, then at a later date sell that and move back into your home as the PPOR, thereby gaining a CGT exemption for both.
If you want to rent your property out in the meantime then this is normally allowable, meaning that both the rent is assessable and the costs deductible. There is no requirement to set up a trust or anything.
If you do decide to set up a trust and transfer the property, then you will be up for stamp duty.
Overall, is seems that you are trying to convert the nature of the debt payment so that you can claim a deduction for the interest. This can certainly be done, but you should be aware that while it may (or may not) make tax sense, from an wealth creation perspective it is confusing to mix personal and investment assets.
You would be well advised to seek the help of an accountant to work this one out, as you may find the tax your are saving is not worth the additional costs. If you need an accountant then I can recommend Mark Unwin (03 9682 5288).
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Padma what you are suggesting is exactly what I wanted to do. But I cannot convince her. Her argument is we both work in the city and it takes 50 minutes to commute from my place and 20 minutes from hers. It’s not a bad argument but I would of put up with the extra travel, then again I am used to it.
Derek I am strongly considering your option to rent my house and plough the rent into my soon to be wife’s property.
Steve thanks for replying. I just finished your book and I loved it. It gave me a whole new outlook on negative gearing. I am now reading Rich Dad Poor Dad. Thanks for the CGT link too.
I should have added I bought my PPOR in 1995 for $150,000.I was renting it out and negatively gearing it while I was living at home. I payed off the loan in 1999 and moved in. It is now worth over $300,000.
Before I read your book I thought negative gearing was great because I did so well from it with my PPOR. It was only after I read your book that I realised you have to make a loss in order to get a tax deduction. I now realise it only worked for me because I bought at the right time and the place appreciated so much in value.
I do like Derek’s other keep it simple option. To keep the property in my name as an income producing asset. Like Steve said I may find the tax I am saving is not worth the additional costs. Real Estate agents have told me the property will rent for $230 to $240 a week. Residex predicts 10% growth in the next 5 years.
The other option is to sell it and look for better income producing assets. What do you guys think?
Steve thanks also for recommending Mark Unwin. Unfortunately I live in Sydney. Can you recommend anyone up here?
Originally posted by Hugo:Before I read your book I thought negative gearing was great because I did so well from it with my PPOR. It was only after I read your book that I realised you have to make a loss in order to get a tax deduction. I now realise it only worked for me because I bought at the right time and the place appreciated so much in value.
You still doubled your asset base – what is the problem?
The other option is to sell it and look for better income producing assets. What do you guys think?
And lose the future growth – nah. Hang onto it and if you do want invest use the equity as leverage into other investments.
Steve thanks also for recommending Mark Unwin. Unfortunately I live in Sydney. Can you recommend anyone up here?
Ed Chan at chan-naylor.com.au
Derek
[email protected]
0409 882 958
Property investment advice and researched property in quality locations available.Originally posted by Hugo:I should have added I bought my PPOR in 1995 for $150,000.I was renting it out and negatively gearing it while I was living at home. I payed off the loan in 1999 and moved in. It is now worth over $300,000.
Hugo, if this is the case, you will probably have to pay CGT on the sale of this property.
Terryw
Discover Home Loans
Mortgage Broker
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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
