Hi Guys & Girls,
Recently been married and my partner has an investment property that's been paid off and is currently rented out (title under partners name). Our PPOR is under mortgage and owing 200k (title under my name). Value of the PPOR is around 600k. The idea of living in the IP and renting out the PPOR is not an option as we would rather stay where we are. We are currently in the process of working out how we can best manage our situation but am in a bit of a bind.
The IP is quite run down but decent enough to rent. Valued at around 450k. Ideally I would like to knock this down, subdivide and build 2. Is it better to go with this strategy or just use the equity of the IP and buy another property? We want a solution that would be tax beneficial so we're not paying so much tax!
Any help would be appreciated.
Hello Want to Invest
Use the equity to do a spruce up on the IP and gain a bit of depreciation on it and go buy a couple of new IP’s.
You are in a good position.
Make a consideration of a display home with a guaranteed rental return for a period of three years and another property in a different location.
We can help with your sums.
Regards
KevinI would seriously look at selling and using the proceeds to pay off your PPOR loan. If the IP was your partners main residence at some stage it may be CGT exempt.
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
Bluegrass wrote:Hello Want to Invest Use the equity to do a spruce up on the IP and gain a bit of depreciation on it and go buy a couple of new IP's. You are in a good position. Make a consideration of a display home with a guaranteed rental return for a period of three years and another property in a different location. We can help with your sums. Regards KevinHi Bluegrass,
Thank you for your reply on this. Are you saying to do a bit of a tidy up, some renovations? If so I did this not too long ago. Very minor works such as some kitchen / bathroom tiling and replacing broken bits to rent out the place. Quite a bit or repairs and maintenance really. Also cleaned up the garden and re painted.
We are definitely looking at another IP but want to get my finances right first.
I like the idea of a display home. Do you know where I can find details of this?
Thanks,
Jim.
Terryw wrote:I would seriously look at selling and using the proceeds to pay off your PPOR loan. If the IP was your partners main residence at some stage it may be CGT exempt.Hi Terryw,
Thank you for your reply.
I would ideally like to pay off my PPOR. I am trying to investigate if its possible to re finance and pay off my loan on our PPOR and transfer the loan over to the IP? This would obviously help with tax reasons and would be debt free with our PPOR. I would rather not sell the IP we have as there is a possibility that a unit could be build at the back of it (place across the street did this and land size is the same). Will investigate this at a later stage.
Thanks,
Jim.Want2invest wrote:Hi Terryw,
Thank you for your reply.
I would ideally like to pay off my PPOR. I am trying to investigate if its possible to re finance and pay off my loan on our PPOR and transfer the loan over to the IP? This would obviously help with tax reasons and would be debt free with our PPOR. I would rather not sell the IP we have as there is a possibility that a unit could be build at the back of it (place across the street did this and land size is the same). Will investigate this at a later stage.
Thanks,
Jim.If you refinance IP and use the funds to pay off your PPOR the interest on those funds will not be tax deductible as the purpose the funds were used for are not income producing. Which is why Terry’s suggestion is the way to go sell IP, pay off PPoR and use surplus for deposit/buying costs to buy a new IP
Hi Want2Invest
The above post from cmason is 100% correct. By refinancing and transferring the debt to the IP….nothing is achieved. It’s not what secures the loan which determines the tax deductibility…it’s the purpose and in this case the ATO would determine the purpose as personal and not deductible.
Investigate either a)the option of selling the IP once you consider any CGT implications and repaying and non deductible debt or if the prospects for future growth is good…consider b) keeping the IP and using the equity for further IP purchases. The difference between a) & b) could be your affordability (due to the remaining home loan).
Hi cmason / speedy g,
Thanks for the information, you've been a great help and it certainly has cleared the air. Much appreciated to everyone!
Ever since purchase the IP's been rented out. So I assume it will have some CGT implications?
I think we may use the IP as equity and look at buying another IP. I would like to hang onto the current IP.
Cheers,
Jim.Yes I agree with the others, you can't transfer the debt from a tax point of view, but you could possible sell the property to your spouse who could borrow the lot to buy it. The loan would then be 100% deductible. Depending on the State it is in it may be stamp duty exempt (eg vic), but even if you have to pay stamp duty it may still be worthwhile in the long run due to the savings.
Another option is to just sell half to the spouse – or enough to release $200k to pay off the non-deductible debt. This should save stamp duty at least.
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
Thanks for all the feedback on this.
We've made an appointment with our accountant next week. Hopefully he can assist us with our situation. From there we will look at re financing. Will provide some feedback!
Cheers,
Jim.
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