Hi
we have 5 IP’s in perth, I am looking at relocating to Darwin I have good equity in the 5 investment Props. This is my question… Can I re finance 1 or 2 of my ips (mortgage them to the hilt) so the I can by a primary place of residence cash( with no debt attached to it)?in other words can I acess my equtity buy a home refinancing my other properties so that the interest repayments on the refinanced ips is tax deductable? I know interest on a primary place of residence is not a tax deduction.[gossip]
Or do I have to sell 1 and use the funds ( after paying out the mortgage on it) to buy my PPOR.[rolleyes5]
any Ideas would be really appreciated
cheers LukeThe quick answer is yes – you can borrow against the IPs to buy a PPOR.
However, when you do topup a loan to release funds then the interest on the new part of the loan is not deductible. So if you top up several loans then you need to make sure each new borrowing is recorded on a split so that you can differentiate which is deductible and which is not.
What might be easier to do is to cross collaterise the IPs with the new PPOR and keep the loans all seperate. This way you can borrow 100% for the new PPOR using the IPs as security.
But by doing this you will have a 100% loan against your PPOR that is not deductible.
Tax effective wise you are probably best to sell one or more IPs to free the funds to buy a PPOR outright.
You can then buy IPs again. This will gi=ve you the more effective taxation structure.
If you don’t wish to sell the IPs you can sell them to a Trust controlled by you. The trust will then borrow 100% and you have the cash to buy a PPOR and a 100% decutible debt against the IP.
This will incur costs. Trusts cost about $1-2K to create and you will have to pay stamp duty on the transfer. But if you are in a high enough tax bracket then this may be an expense recovered quite quiuckly. This stamp duty will be a similar cost to an Agents Fees to sell an IP so don’t discount this strategy in favour of selling outright on cost alone.
At the end of the day you should get an accountants advice before making any decisions.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
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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.
Thanks for the advice,
I really do not want to sell, but if i sell it to a trust controlled by me I will unlock the equity ( cash in my pocket) and still own the property through the trust with the negitive gearing on the total amount in this case say 450k debt.
The property is in Scarborough and is the jewel in my portfolio, with great cap growth over the last 14 years, and the fact that we lived in it for 10 years should help to reduce the capital gains costs. Hmm this looks like a good option to me I will talk to my accountant and lending officer.The bank has pre approved a 350 k loan, but to sell it to a trust i would get the negitive gearing benefits, well the trust would I spose,
hmmm i need to speak to the accountant i think.cheers[drummer]
You need to speak to an accountant, as if your trust has no other income, you cannot get negative gearing benefits – unless you are using a hybrid discretionary trust, and are borrowing to buy units in the trust.
Terryw
Discover Home Loans
Parramatta
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I think all of this will apply to me down the track. As I will be building up a few IPs then I will move out of home and buy my PPOR, this is the solution for my tax deduction problems.
Also this trust that is set up can protect me from lawsuits(as you have to sue the actual trust to get at the IP).
I got all this from BulletProof Asset Protection. Excellent book, everying property investor(anyone at all) should definetely read this, as It may save millions, and may save your lifestyle for the rest of your lives. You just don’t know.Christopher.
Nice one Simon, hadn’t thought of that strategy of selling to trust but I’ll need to pay CGT on the sale side too won’t I? I suppose what you are doing is crystalising the profits but keeping the IP in the “family” so to speak with associated stamp duty costs. My strategy of releasing equity from IPs was to use LOC to pay interest & IP costs then slowly accumulate rents in a separate a/c for tax purposes. Slow I know but if you have a few IPs, can easily “release” $100k a year.
You would have to pay CGT on the sale of any investment proeprty, but not your former home – usually anyway.
Terryw
Discover Home Loans
Parramatta
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Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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