All Topics / Help Needed! / PPOR to IP.

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  • Profile photo of MattyHMattyH
    Participant
    @mattyh
    Join Date: 2009
    Post Count: 6
    September 3, 2010 - 3:19 am

    Hi Everyone,

    Currently have a PPOR which we’ve been living in for a year.
    We’re saving now for our first IP and are currently paying all spare funds into our mortgage to lower interest but can redraw when we need it.
    Current loan is P&I.
    Being new to the game have been reading heaps of useful info on this site.
    What are the tax implications of buying another house to live in an converting current PPOR into an IP?
    On a recent thread there were comments made that this is possible, but I have read elsewhere that as the funds were initially borrowed for a PPOR that you lose tax benefits?

    Thanks in advance,
    Matt.

    Profile photo of LHLH
    Participant
    @lh
    Join Date: 2010
    Post Count: 97
    September 3, 2010 - 4:08 am

    Hi Matt,

    You can redraw the funds (or refinance to release equity) to help towards the purchase of a new PPOR and turn your existing home into an IP, but as the purpose of the funds is to purchase a new PPOR, they are not tax deductible. All existing debt you currently have against your PPOR will be tax deductible once it is an IP.
    A suggestion would be to place all excess funds into an offset account, which will also reduce the interest payable but keep the debt at existing levels and increase your deductions in the future.

    However if you were to turn your future PPOR into an IP further in the future, the funds would then be tax deductible.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    September 3, 2010 - 7:04 am

    I would suggest you immediately stop paying extra into the loan and try to switch to a IO loan with a 100% offset account. Pay the min and put the rest in the offset.

    When you get the new PPOR I suggest you do the same as you never know when you will move out of that one and rent it.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    September 3, 2010 - 8:10 am

    Hi Matt,

    You should also get your PPOR valued when it becomes an IP. That way, if you end up selling it in the future you shouldn't have any issues with the ATO when working out how much CGT is payable. The CGT will be the sale price of the property minus its value when it became an IP.

    A local real estate agent should be able to provide a written appraisal.

    Cheers,

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

Viewing 4 posts - 1 through 4 (of 4 total)

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