My mother in-law completely owns her PPOR and was thinking of buying a newer PPOR and renting out her current PPOR, however she doesn't want to be a slave to another large mortgage.
1. Is she able to somehow use the equity in her home to buy the new property and make the loan as small as possible
2. Because the current property will be positively geared when she rents it out, is there a way of claiming the interest she will pay on the new loan on tax?
Cheers,
Kyla
This is a common question
1. She can borrow on the existing property to buy the new one, but the interest won't be deductible. The size of hte loan will depend on how much cash she has available.
2. no. All she could do is to borrow to pay the expenses on the rental property – such as insurances, rates etc
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
Kyla
One option would be to consider selling the PPOR into Trust with her as the sole Unit holder.
She would then borrow 100% of the PPOR value and use the funds to purchase her new property.
The entire amount of the interest would then be Tax deductible.
Depending on where the property is located would determine the cost of doing so but we do this for clients on fairly regular basis.
If she doesnt take this course of action then Terry is totally correct with his comments.
Richard Taylor | Australia's leading private lender
Ok thanks guys, i thought so!
She is also considering building a 'live-in garage/granny flat' in the back yard with it own street entry to rent out.
1. am i correct in saying that the interest on the money she borrows to build the flat will be tax deductible because its an investment?
2. she also thought about subdividing the the property in order to have its own electricity and water supply however it was apparently going to cost 60k to get approved before the costs of connecting separate power and water supplies. What are your thoughts on this plan?
Cheers!
Yes the interest on the loan to constuct the granny flat to be used as investment will be tax deductible.
One consideration if she subdivides the property will be that this course of action may effect the CGT free status of the property.
Certainly be getting some Professional advice on this before proceeding.
Certainly seems cleaner to me to move and out and rent the entire house.
Richard Taylor | Australia's leading private lender
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