Hi all
I am not su if anyone has been in the same situation bu I will ask the question.
We live in a unit and took a line of credit against it. The unit initially cost $350k in 2007. After paying 20% deposit, we borrowed $276k, 125k fixed and a151k as line of credit. Since then, we have paid off the line of credit and only owe the fixed amount which will expire next year in may.
We are now looking to build a family home and using this as an investment unit. We intend to draw all the money from line of credit to put in our new home. But we have been told by a friend that we may not be able to claim tax deductions on the drawn amount as it is not for income producing purposes. I have 2 questions
1. If we change the nature of our loan to offset, can we then claim tax deductions?
2. Going at the current rate of extra deposits, are we better off selling this property and using al our money in paying off the new house mortgage? The new property costs 600kThanks in advance
Ourdreams wrote:But we have been told by a friend that we may not be able to claim tax deductions on the drawn amount as it is not for income producing purposes.Hi ourdreams
Welcome to the forum.
Your friend is right.
1. No
2. You'll need to crunch the numbers. Remember, there are likely to be high break fees with the fixed loan which you need to consider as well.Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks Jamie. We are Seeing an accountant soon so should help. The fixed expires a couple of months before our house will be ready to move in. So the break costs are not a concern.
It sucks because my understanding is that you can claim tax deductions on an offset account. Our banker has advised us to refinance our current property and release all the equity to then take an offset account. That way we may be able to claim tax deductions, not sure if that is right advice…..
I just wish everyone talked to an accountant before paying down loans because it seems every two weeks someone start a thread with these exact same questions!!!!!!
Thanks Jamie. We are Seeing an accountant soon so should help. The fixed expires a couple of months before our house will be ready to move in. So the break costs are not a concern.
It sucks because my understanding is that you can claim tax deductions on an offset account. Our banker has advised us to refinance our current property and release all the equity to then take an offset account. That way we may be able to claim tax deductions, not sure if that is right advice…..
Sorry Luke but when we took on a mortgage, we did not know if we would be taking up an investment property 5 years down the line and that line of credit is not a great product for mortgage. We did speak to an accountant then and are speaking to one now!
You don't know what you don't know do you. But it could have been set up so much more effective. Imagine if you hadn't paid down your LOC, but instead used an IO loan with 100% offset from the beginning. $151,000 x 7% = aprox $10,000 pa. That means you have just lost a tax deduction of $10,000 pa for the next 30+ years.
The bank shouldn't be giving tax advise either, what they are saying is incorrect
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
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