Hi
I currently own a 3BR unit in Westmead NSW (10-15 YEARS OLD). I owe a mortage of 200k on the property . Recently I
bought a old house pre 1985 construction (1950) for 570k. The loan against the property is around 468k.
When I bought the house I was thinking of making my exisiting residence as investment property . I also borrowed 136k
against the 3 br unit property o buy the house.
But after buying the house I thought of renting it out for 2-3 years and then probably move in after doing renovation or
demolishing it. I am expecting weekly rent of 440/pw .I would also expect same rental income on my 3 BR unit.
Depreciation on the house property will be nil or very small. But the interest expense on the larger loan will be higher .
Any thought or advice will be very much appreciated.1. I dont think you can deduct the 136 K interest as it is against your current PPR even though the loan was for your IP.
2. If you move, the house would then become your PPR and the interest on that not deductible.So the question really should be how much do you want to incur in non deductible interest.
I would stay in the unit
never base investment decisions on the tax outcomes government policy can change.
Read this thread carefully:
https://www.propertyinvesting.com/forums/property-investing/help-needed/4335481
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Magoo
Your statement is incorrect.
The security does not matter it is the "purpose" of the funds that is inportant.
As i have said many a time before you could secure the entire loan against a pogo stick and have all of the interest deductible if the purpose of the loan is for investment.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Haha!!!!!!!!! Richard you've got me in stitches. Cheers for the entertainment! Pogo stick indeed!
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Jac you now me always try to provide both structured advice as well as entertainment in the same post.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi recyclingguy,
That’s always a key question and I would always suggest that you speak to a professional tax advisor or your local accountant to help you out. Essentially you'll have to calculate your tax position under both scenarios and see what gives you the best tax position.
But just as a little guide I think I can help. Just based on the depreciation and interest on both properties it would seem that the house will provide a better tax position for you. This is why –
The unit is say 15 years old and based on standard depreciation calculations that would give you around $5K of depreciation per year (on a stright line basis, around $8K for dimishing value – based on a purchase price of $450K which I guessed). Your loan of $200K at say a 7% interest rate will give you around $14K interest expense which also can be deducted. Therefore your total tax benefit is around $20K times your tax rate.
If you choose to have the house as your investment property, you generally wont received any depreciation on your property (as it is older than 40 years) but your loan is much higher at $468K. Based on 7% interest your interest expense is around $32K.
So even though you have depreciation benefits on your unit the fact that you are must more geared on your house suggests to me that you'll get more tax benefits from the house than the unit. There are other items for consideration though:
– I am assuming that the the property that you are not living in will be considered for investment purposes and therefore interest and depreciation will be deductible. You will need to check with a tax speclialist if that is the case
– you also need to consider the expenses for the properties as well. The higher the expenses the more deductions you should be able to claim as well.
– are you happy to live in either of the two? I would think living in a house would be more comfortable so you will have to make the call on your type of living standard as well
Hope this helps
You must be logged in to reply to this topic. If you don't have an account, you can register here.
