I own 2 properties – my home and one residential investment property. I would like to use the equity in my investment property to pay off the total mortgage on my home. Is this allowed? I expect there will be some sort of tax implications from doing this? Does anyone know where can I find more information on this? Thanks for your time.Hi Riss
Funny you mention this as it would be the most asked question i get from clients.
The simple answer is Yes / No.
Yes you are able to borrow money secured against your IP in order to repay the mortgage secured against your PPOR.
Regretfully the interest charged on this new loan will not be tax deductible as under the purpose test the proceeds are to be used to repay a non tax deductible debt.There are a couple of ways to get around this but without more information it is difficult to make a vauled comment.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
Hi,
I agree with Richard, the ATO will look at the purpose of the loan.
Unfortunately a lot of people end up in this scenario because they pay of their home loan for many years, then borrow to buy a new home and rent out the existing home. Hence the investment property has had the loan payed down and the new property has quite a substantial loan. One way to access the equity is sell the house with the equity. Buy a new house and use all the equity to minimise the loan. Then borrow 100% of the money for the investment property against this new home. This will incurr a lot of stamp duty etc so has to be weighed up agains benefits.
The other thing you can do is pay the principle off your home as much as you can, and interest only on the investment property with your cash flow. This way reduce a non tax deductable debt and not teh tax deductable one. There are many books and magazine articles that deal with these topics.
Fireblade there is no need to sell the house and then go and buy another IP you can do it on the original PPOR.
It is that difficult but need need consideration as Stamp Duty is triggered. In saying this the SD can be added to the Cost Base and in most cases clients find within 1-2 years depending on how old the property is they have recovered all of their costs and indeed paid cash for their new PPOR.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
Thank you for your replies. I appreciate your advice.
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