Hi we are renting out our original home and bought another interstate. I didn't realise that we released equity in the now rented property to help fund our current home. Will we still be able to neg gear, deduct interest and other expenses i.e real estate fees etc… pulling my hair out. Thanks.
Hi AnGelcAkE
Just to make sure that I understand what you did.
You purchased a new Principal Place of Residence (PPR) interstate. In order to afford this purchase you increased the loan on your previous PPR – now your rental property. In short you drew on the equity in your first PPR?
You will still be able to claim part of the interest on the loan of your now rental property – but not on the part of the loan that you used to purchase your new PPR. You will have to apportion the loan and interest between the two.
You should really also have your rental property valued, by a valuer as you need to establish the value of the property just before it became a rental property. You will only be liable to pay CGT (capital gains tax) on the appreciation in value since it became a rental. The capital appreciation when it was your PPR is not subject to capital gain.
It is normally a good idea to run these type of transactions past your accountant before your enter into them. They can normally make you aware of pitfalls and ensure that you structure them properly.
Annemarie
Dear Annemarie
Thank you for responding. Yes we purchased a PPR interstate and my husband told me we drew on the equity of our rented property to secure our PPR. But I don't recall our loan increasing on our rental so I will check with the bank. I spoke to the ATO & a Tax accountant today over the phone & they never mentioned apportioning the interest
At least we can deduct something. Thanks for the tip about the getting the property valuated.Thanks again Angela
Hi Angela,
Double check….did you WITHDRAW the equity (ie increase the loan amount) or did you CROSS SECURITISE (ie not increase the loan on now rental , but secure the purchase of new PPOR against is equity)?
If you dont recall the loan amount increasing then perhaps you have both properties secured together.
Either way, the interest you can claim is the interest component on the rental only.
Eg
Original Loan $100K
Withdraw $50K against equity
New loan $150K against rental
Only the $100K interest is deductible
Hope that helps, but always chack with your accountant.
Mick
Hi Mick
I double checked with my husband last night & we only as u put it cross securitised. Our rental property loan did not increase. Thanks I'm already on the search for a good accountant in Adelaide. I think that will be my next topic lol. Thanks for the help.
Angela
At least we can deduct something. Thanks for the tip about the getting the property valuated.
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