The situation is as follows:
IP & PPR both owned by husband and wife as joint tenants.
IP in Melbourne. Value $500,000 Mortgage $100,000.
PPR in Perth. Value $400,000 Mortgage $275,000.
Can anyone advise on a cost effective way of being able to increase the loan on the IP in a manner that will make it tax deductible.
ned kelly
Yes. Sell the IP, use the proceeds to pay off your PPOR mortgage and then re-borrow to buy another IP. This will ensure all debt is deductable, but it comes at a considerable cost (stamp, CGT, agent fees, legals). You need to do the sums to see if it is worthwhile but here’s a start.
On the plus side $275k/yr @ 6.5% = ~$18k. If you are on the top tax bracket then the potential benefit is $9k/yr.
On the cost side, CGT = ?, Stamp on new property is ~$25k, agent fees = ~$8k, legals = ~$1k.
You don’t need to sell it. Transfer title to, say, a trust and have the trust borrow 105% to buy it.
Put the proceeds into your offset account on your home loan.
Weigh up the costs of doing this vs the payoff.
Seek accountants advice.
Cheers,
Simon Macks
Residential and Commercial Finance Broker[email protected]
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.
Interest is only deductible for money used to generate income. You can’t deduct interest for money used to pay off your PPR no matter what secures that loan.
Just pay out the PPR loan to reduce the interest paid.
Or you could move out and rent while leasing your PPR to someone else thus making it an IP. This may work out if the rent you pay is less than the rent you get from your PPR.
surrey
IP valued at $500,000, loan $100,000.
Husband buys the wife’s share for $250,000 and borrows the lot. $200,000 would need to be borrowed with this money given to the wife who then uses it to pay into the home loan/offset.
Watch out for CGT – may be low if wife is not working, and stamp duty. Stamp duty may be avoided in some states on transfers between spouses.
Selling to a trust may be a better solution.
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
BTW the interest in the above scenario should be deductible as you have borrowed money to purchase a income producing property. Please confirm this with your accountant.
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
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