I am still researching our first investment property. With the investment loan, is the interest part tax-deductible or the principle and interest both tax-deductible?
ONLY the interest.
Generally we structure investment loans to be interest only, that way you can use the funds which would otherwise be used to pay the investment loans principle to pay down your OWN non tax deductible home loans. This increases deductibility, reduces your home loan faster.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks for your reply, Corey.
What about if my house is interest only as well, we r thinking of upgrading in 5-10 years, we got suggested to use interest only loan for both home property and investment property.
See if you can get an offset on your home loan. Otherwise I would change to P&I with an offset. What was the reason for going IO on the home? What do you do with your excess cash?
What do you do with your excess cash
I’d save it for a rainy day. Interest is the same regardless but you get to keep the cash.
What about if my house is interest only as well, we r thinking of upgrading in 5-10 years, we got suggested to use interest only loan for both home property and investment property.
Park all savings in the offset linked to your owner occupied loan.
When you move onto your next home – use this cash to cover deposit/costs and/or transfer it into a new offset linked to thew owner occ loan.
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]
What about if my house is interest only as well, we r thinking of upgrading in 5-10 years, we got suggested to use interest only loan for both home property and investment property.
Park all savings in the offset linked to your owner occupied loan.
When you move onto your next home – use this cash to cover deposit/costs and/or transfer it into a new offset linked to thew owner occ loan.
Cheers
Jamie@mddedf its great to come to forums like this an learn! Congrats on beginning the journey it is much cheaper to learn by asking than by getting ripped off with a poor transaction first time so well done.
The post above is the difference between trying to work everything out on your own vs finding a great team of partners to work with. Quality brokers like @cjaysa and @jamie-m will speed up the learning and ensure you get the right loans, instead of a bad structure or product. I have personally seen Jamie do some very fine work with my own clients and have never regretted it.
BuyersAgent | Precium
http://www.precium.com.au
Email Me | Phone MeSouth Coast NSW Independent Buyers Agent - Wollongong to Batemans Bay and Regional NSW. DOWNLOAD OUR FREE 14 POINT PROPERTY BUYER'S CHEATSHEET to avoid painful mistakes at precium.com.au
Thanks very much for all your help, it is such a supportive community here!
If I use P&I loan with offset account for my PPOR now, when later on I want to change PPOR to Investment property, can I redraw mortgage payment thus maximise tax-deductible income?
For example, after 5 years, if I have paid my PPOR mortgage from $300k to $200, can I redraw the $100k to get back to $300k then change it to IP? So I can get $300k interest tax deduction.
Sorry for my crazy thought and pls tell me if I am wrong.
Hi Mddedf
Yes you can redraw the funds but the interest will not be Tax deductible.
Next issue is the total loan can become contaminated so if in doubt go Interest only with offset.
Some lenders charge a higher rate for an interest only loan even on a PPOR so your Broker should be able to dig around and find something for you that should suit.
Cheers
Yours in Finance
0-40 properties in a decade. Ask me how.Richard Taylor | Australia's leading private lender
mddedf: When you redraw funds, it’s counted as borrowing again in the ATO’s eyes. Tax deductibility is determined by the usage of the funds – so unless you used the redrawn funds from an investment purpose it would NOT be tax deductible.
This is where interest only with an offset account becomes so important, as you can pile the funds into the offset account and freely access those funds, whilst keeping the full debt tax deductible for the future IP.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Another thing to bear in mind re. Tax deductibility is that it’s the use of the funds that determines deductibility NOT what the loan uses for security.
Ie. if you borrow against equity in your PPOR and use it to purchase and IP then it IS Tax deductible.
whereas if you took a loan against equity in an IP and used it for renovating your PPOR then it wouldn’t be deductible.
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