Gday gurus,
my first post here, looking fwd to sharing and learning a pile, thanks in advance to anyone who replys!here's my situations current PPOR value $700K loan $300K, my partners previous PPOR and now IP value $325K loan $95K.
Im looking to access the equity in my partners IP to reduce the loan on our PPOR and get an interest only loan on the IP so I can write off the interest against my taxable income, (which i need to desperatley reduce for the 2007/2008 fin year). At least that is my plan so far……..what is the best mechanism to achive this without getting slugged with taxes/fee's etcHi DS
Regretfully it doesnt work like that.
The ATO look at the "purpose test" when deciding whether the interest is deductible or not.
In your case the funds raised from the IP will be to reduce your PPOR loan and therefore would not qualify.If the property was sold into Trust then the entire amount of the interest charged on the new loan would qualify and this maybe an option.
On the downside stamp duty will be payable on the Transfer and additional land tax may also be charged depending on the land value.
Depending on your marginal Tax rate it is worth do the numbers depending on how long you intend to keep the IP for. The longer you retain the property the greater the benefit.
Richard Taylor | Australia's leading private lender
thanks QLD 007,
what about a straight transfer of title to me (as long term partner/married) to avoid stamp duty etc and refinance both loans with one lender, maintaining a distinction on the IP so the interest component is tax deductable???
You could transfer the title to your name. Not all states offer stamp duty exemptions though. It would be as if you are buying her property, so there would possibly be CGT payable as it is an investment, though it may be exempt for the period it was her PPOR. If you borrow to buy this property the funds should be deductible and the money released to your wife could be gifted to you and onto your home loan.
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
As Terry has mentioned the Stamp Duty exemption will vary from State to State (certainly wouldn't get it in Qld) but yes certainly worth looking at on the basis you are on the highest marginal Tax rate.
Remember not every lender will understand or even want to work with you on this deal so make sure you Mortgage Broker is au fait with such investment strategy.
Richard Taylor | Australia's leading private lender
thanks guys,
just to clarify your suggestion Terry, the property would transfered to my name after I buy if from my partner(apply for interest only loan, borrow purchase price+ extras, hopefully no stamp duty depending on WA laws), then she gives me the money back to put on the PPOR mortgage…Yes It essence that is correct.
Richard Taylor | Australia's leading private lender
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