Hi guys
I am not very good with tax, but I've heard from a tax accountant (who is also a property investor) about pre-paying mortgage interest on your IPs for tax reasons.
Basically, he'd take out interest loans only on his IPs (makes sense as only interest is tax deductible if it is negatively geared, if I recall this correctly) and then pre-pays mortgage interest for the coming financial year.
What I'd like to know is what are the advantages of pre-paying next year's mortgage interest in the current financial year…..
Sorry if this is a silly / basic question, but we all need to start somewhere when we are learning, right?
Thanks in advance.
Merely increases the Tax deductions available in the current financial year which can certainly help with Tax planning if you believe the following Financial year your Marginal Tax rate or personal circumstances will have changed and your income effected.
Assume property was owned as Joint Tenants and wife was giving up work for 9 months to stay home with the new born.
If the property was negatively geared she would have next to no income to offset the claimable deductions.
This year of course could be totally different.
Richard Taylor | Australia's leading private lender
Ahhhh! Thanks Richard, makes perfect sense now. cheers!
The problem with pre-paying interest is the lack of deduction in the next financial year, unless you intend to keep pre – paying interest. (Ask the bank you are with if they have a premium for this privilege- they often do).
Don't get me wrong, it can be effective. DO THE NUMBERS FIRST, DON'T ACCEPT FASHIONABLE STRUCTURES WITHOUT DUE DILIGENCE. Pre-paying for a large corporation is a little different then Mum and Dad investor – sometimes it may be more trouble then it is worth…….
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