Hi All,
I need some guidance on a taxation related issue.
My nephew has just purchased his first IP but doesn't have sufficient deposit to avoid mortgage insurance. So, his mother will be lending him the balance of 20% which she is drawing as a line of credit with her PPOR as security. The bank will lend him the other 80%.
Will my nephew be able to claim the interest and costs on the private loan, as well as the interest and costs on the bank loan? If so, how will we go about making sure that we have the correct records for taxation purposes. Remembering that his mothers loan will be in her name and not my nephews.
Thanks in advance for your help.
Ivan.
Have his mum keep proof of a) the debt, b) the interest rate c) interest charged d) repayments made – a loan document wouldn't go astray either (proof of debt)
Ivan
Good to hear he secured the 80% LVR must admit i though he was buying it as a PPOR.
Firstly Mortgage insurance is a tax deductible expense (over a 5 year period or the length of the loan whichever is the shorter) and not all lenders charge LMI over 80% LVR.
I would have probably gone 100% LVR interest only with an offset account and she could have covered his Transfer stamp duty which is not Tax deductible and oly to the Cost Base in the case of a sale.
In the absence of doing this as Scott has mentioned then as long as it is fully documentated (The Solicitor should be able to do up the mortgage and loan documents) he should be ok.
Also remember in Qld stamp duty is still charged on mortgages and any income his mother receives will need to be declared as income when she lodges her Tax return. Make sure she has a separate account so to be able to distinguish what relates to what.
Richard Taylor | Australia's leading private lender
Scott,
Thanks for your comments. I was fairly sure it could be done, just wasn't sure if the private loan needed to be in his name or not. I guess that if we have a signed loan agreement this should cover it.
Richard,
You are still supposed to be on leave? He managed to secure the loan with no problems. First home owners grant also made a big difference. As such, it will be a PPOR for the first 6 months. This will give him time to tidy the place up ready to get a good rental. He didn't have very much as a deposit and his mother has offered to cover the balance of the 20%. This way we avoid LMI. We will defer repayments of the private loan for the first 6 months just to ensure that all the repayments are related to an IP. Another reason for this is that the combined repayments would be a bit heavy for the young feller.
We will definitely keep all the records separate so that his mother will have no problems at tax time.
Richard, I need to set up death and trauma protection for him. Should I do this through the bank Financial Planner or should I do it through you?
Ivan
Hi Ivan
Feel free to shoot me an email with his details and I can rustle up a quote for you.
Compare this with the Bank's FP. Just bear in mind I am independant and they mabe tied to a particular insurance company meaning you will not get the choice of policies.
For Term Life / Trauma would just need date of birth, occupation, smoker ? i can then give you some Trauma options.
On the loan front remember that it is 12 months in Qld to qualify for First Home Owners Stamp Duty concession.
Richard Taylor | Australia's leading private lender
You must be logged in to reply to this topic. If you don't have an account, you can register here.
