Hello there,
I am planning to buy my first IP, just wanted to make sure that I understand the tax benefits correctly. The way I want to structure my loans is
Loan A (258K) (PPOR) -current value 375K (can borrow LOC up to 78K from here) (with bank A)
Loan B (78K) borrowed against equity against Loan A as LOC (with bank A)
Loan C (282K) IP Property (with bank
Please be advised that I am avoiding cross collateral here to maximise tax benefits and management. So Loan A and Loan B would be different.
Here I am planning to use Loan B to cover capital costs for IP, 20K stamp duty, 58K as deposit.
Questions:
1) Interest occured on Loan B can be claimed in tax as loss or not (this has been used for deposit, legals, stamp duty, registration)
2) Assume the outgoings for Loan C (Rents,council fees, water rates, property management costs, etc…) is greater than rental income, so as per the loss this can be claimed againts tax as well or not
3) Depericiation against Loan C, I am not clear about these claims. Assume the scenario where property is build in 1990 and value of the property is 340K (I bought for). so can I claim 2.5% of 340K every year until 40 years or how will that calculate. And that deperciation amount for every year will go againgst my annual taxable income. I have avoided depericiation against the fixtures of property just for this scenarion (but this would be arranged by surveyor)Any response would be helpful.
thanks
SaurinOK
1) Interest on Loan B can be claimed IF it is used for deposit, legals etc.
2) Any holding expenses for the property can be claimed. (Council Rates, LAnd Tax, Water Rates, Insurance etc). Interest on Loan C is deductible as it was used to purchase the property.
3) If the property was built in 1990, 20 years of depreciation has already been claimed, or at least been available to claim. The 40 years is from the original build date, not when you have purchased. A depreciation report would be able to clarify this for you.Just to clarify for you, your income or loss from the property is worked out by subtracting all the expenses (interest, rates, insurance, repairs, depreciation etc) from the rental income.
If the rental income is more than the rental expenses, this amount is added to your other income.
If it is less, this amount is subtracted from your other income.
Excellent thanks Dan42.
Just To clarify
1) Loan B is also used to pay for my stamp duty for IP, so interest on Loan B can be clamied?
3) Depericiation makes sense now. assuming your scenario construction date for property i bought is 1990 so i have 20 yrs left to claim. and as per date it would 2.5%. 2.5% of what? the property value i paid to buy or is there some other value of 2.5%. which figure gets calculated here.thanks
SaurinYes, Interest on Loan B is deductible.
2.5% relates to the construction costs. A QS will be able to work this out for you.
From my knowledge, Legal Expenses on Investment Property are not Tax Deductible.
Needs to be verified from a Tax Accountant.
AM2778
AM2778 wrote:From my knowledge, Legal Expenses on Investment Property are not Tax Deductible.Needs to be verified from a Tax Accountant.
AM2778
thanks for that. what costs fall under legal expenses. is it stamp suty, registration, is there anything else
Saurin
I have a question –
If Interest Only Repayments on Loan C are getting debited from Loan B and Interest Only Repayments on Loan B are getting deducted from a Transaction/Savings Account, then
Wouldnt the funds available in Loan B be decreasing ?
I would assume that the amount of Repayment of Loan C would be far greater than the amount of Repayment for Loan B?
Where will be the rent deposited and how will the Tax Refund be disbursed ?
AM2778
AM2778 wrote:From my knowledge, Legal Expenses on Investment Property are not Tax Deductible.Needs to be verified from a Tax Accountant.
AM2778
Capital costs associated with purchase are not deductible, but the interest paid to acquire the asset is deductible.
thanks a lot for your input guys.
Correct me if I am wrong here. the interest occured on Loan B would be deductible, cause it has been borrowed with intention of covering capital costs for my IP. Please note I am talking about the interest here not the actual amount. Actual amount like stamp duty and stuff will only come in play when I decide to sell my IP Property for CGT.
Loan B and Loan C both would be tax deductible and would interest only loans (Assuming my IP for Loan C gives me loss).
Interest only payments for Loan B would be deducted from my Transaction/Saving account with Bank A. (No Principal be paid in Loan
Interest only payments for loan C would be deductible from my Transaction/Saving account with Bank A as well, unless Bank B forces me to open Transaction/Saving with them, in that case it would deductible from Transaction/Saving account with Bank B.
(No Principal be paid in Loan C)My rental payments will automatically gets credited in to my Offset account which is Loan A with Bank A (Being bed debt).
Does this sould right or is it feasible to do?
thanks
Saurin
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