Hi All
I am not sure if this is legal and was hoping for some advice.
1. Can't sell PPOR
We can't sell our PPOR in the current market so we thought of renting it out instead. Its a 4 bedroom that is only 12 months old, so we thought that the depreciation would be good and it would rent well ie. about $420 to $450 / week looks to be the median return for houses like this.
But the loan is currently a principle and interest and is only $200k when the house was conservatily valued at $500k. So it doesn't represent a good investment in terms of claiming interest and or negative gearing ie. it would be generating an income for us – which we don't want because it would push us into a higer tax bracket and be taxed at about 40c in the dollar.
2. We thought of refinancing.
We thought of refinancing ie. bump up the loan from 200k to 400k and turn it into an interest only and then rent the house out – maximising the interest we can claim and the negative gearing ie. little to no income is generated – but we are not sure if this is legal. ie. our advice is that we can access the equity to get another 200k – no problem – but depending on what we do with this money is how the ATO will treat it eg. if the 200k is invested in building a PPOR whilst we rent out our existing home and rent elsewhere ourselves, then we won't get the benefis from renting our own house out. If the 200k is invested in the build of an investment property however, we can claim the interest!
3. So we are not sure what to do – any advice?
Has anyone done something similar or tried to in the past? Is it illegal, can it be done? Should we bide our time and simply try selling in December later this year and then go onto build again, and then get an investment property?
Manyana
3.
Hi Manyana,
Only interest against the minimum balance owing is deductible. If you redraw for personal reasons (toys, PPOR) thatn interest agains that portion is not able to be claimed. If the purpose is for investment then it is.
There are a few things to consider:
1.Where are you living if you rent out PPOR whilst building? Additional cost
2. What happens if old PPOR isnt sold, how long can you hold both for? At what point is it no longer econimically feasible (what I mean is if holding the two cuts into say $20K of your capital growth then maybe you are better to consider dropping say $10K off the price to start with – a crystal ball is needed I know, but if you can work this out in terms of time relevant to yourselves, then you will be in a better position to make a decision)
3. Dont forget any depretiation is added back at tax time following a sale, so for a short term project, although better than nothing, may not be as rosey as it first seems.
4. Can you advertise your current PPOR for sale with a guarented tenant (you) in place. It may open up your market a little.All the best
MickSorry newbi2 I don't want to seem contrary but point 3 of your post doesn't apply here.
There will be no CGT to pay when the property is sold if it was rented out for less than 6 years and no other PPOR was claimed.Cheers
ElkaHi
As you have significant equity depending on the current ownership structure EG: joint etc there may be some options to increase the tax deductible portion of the loan.
If you redraw to use it on the new PPOR it will not be tax deductible even if the loan is secured against your current property. Deductibility relates to the use of the funds redrawn.
Depending on the current ownership and your income situation eg: employed or business owner etc there may be ownership change options to release the money to use for new PPOR and have the debt tax deductible.
Give me a bit more detail and I'll expand.
Alternatively email me at [email protected]
Hi Manyana
You are about the 3rd forumite i think who has asked the same question in the last week so it is getting to be a popular topic and obviously so relevant in todays climate.
If you would rather shoot me an email than post personal information on the forum in public i can crunch the numbers for you and give you some options. Hopefully the other forums members who contacted me at the end of last week were quiet happy with the options available to them.
Richard Taylor | Australia's leading private lender
Elka,
You are quiet right, although I took it if they are building that they have already purchased the land. If so, then there is only a 6 month allowance for 2 places to be considered PPOR. If the building isnt completed in that time, then if the original PPOR has not been sold, a small proportion of CGT may be payable. Not to say it will, I just wanted to point out that it may, especially if there was a delay in building time, or sellling time.Cheers
Mick
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