Another PPOR to IP / IP to PPOR question

[komstak]

Scenario is like this:

Value of PPOR = 500K
PPOR Loan Balance = 300K (with 100K in redraw)

Used 100K from redraw as deposit to buy 600K IP.

PPOR Loan Balance is now 400K (0 in redraw)
IP Loan Balance is 500K

After 3 years…

PPOR Loan Balance is still 400K but has 100K in offset (0 in redraw)
IP Loan Balance is still 500K

I want to make the IP our PPOR and our current PPOR to an IP.

New IP (previous PPOR) Loan Balance is 400K (0 in redraw, 0 in offset)
New PPOR (previous IP) Loan Balance is still 500K with 100K in offset.

My question is… will the whole interest of the New IP loan balance of 400K be tax deductible or only a part will (i.e. the original 300K before redraw was used). Is it better to sell the old PPOR in this case as we won’t get CGT anyway and just buy another IP? What are my other options?

Thanks in advance.

 

[investor888]

Only part of the interest will be tax deductible (i.e. the original 300K before redraw was used). The 100K redraw amount will not be tax deductible (as the ATO will see that as having been used for personal use , ie you new PPOR).
The 500K Loan for your new PPOR will not be tax deductible either.

So effectively you are going from 300K non-deductible to 600K non-deductible.

Do you figures in terms of transaction costs, etc, vs the additional interest amount to work out whether it works out better to sell or not.

 

[komstak]

Only part of the interest will be tax deductible (i.e. the original 300K before redraw was used). The 100K redraw amount will not be tax deductible (as the ATO will see that as having been used for personal use , ie you new PPOR).

But originally, it was used for investment although later on it became "personal". Does that count?

What if I didn't claim tax deductibility for the 100K redraw for the 3 years I've used it for investment? Will that have some effect?

 

[investor888]

It doesn't matter what it was used for 3yrs ago. All that matters is the current status of what that money was used for (which is your new PPOR).
Would be nice your way though ). Pull out 500K from my current PPOR for an investment, then move into to my investment later, and claim deduction on the 500K. If this was possible, everyone would just be upgrading their PPOR, and having the government pay for it.
The 100K redraw is not tax-deductible once you move into your investment property and turn it into a PPOR.

 

[marg4000]

Investor888 is quite right.

The purpose of the $100K was to buy the $600K IP and therefore tax deductible while that property is rented. Once you move in then all loans used to purchase that property are your private expense.
Marg