Borrowing against an Investment Property

Hi,

Wondering whether anyone can explain the rules around borrowing against an unencumbered investment/rental property if you are wanting to negatively gear it?

Specifically, what are the rules/restrictions on what you can use funds you have borrowed for?

Thanks, Terry.
 
You can use the funds for anything you like. You cant 'negatively gear' unless the purpose of the borrowed funds are to produce assessable income.

Note, it doesnt matter what you use to get the loan, your PPOR or your investment property, its the purpose of the funds that counts for tax.
 
If you own ANY property and borrow against it, it is how the funds are used that determines its deductibility;

Examples:
- Own home. LOC and use funds to buy a private car, boat etc - Non-deductible.
- IP. Draw down on equity loan and use proceeds to buy a private car, boat etc. Non-deductible.
- Own Home or IP : Draw down on LOC etc and use proceeds to fund acquisition of anew IP then the new loan is deductible against IP#2.

Always ensure you dont blend loans. eg : If IP1 has a loan and it was used to acquire IP1. then you dra $50K to fund a depoist to buy IP2. eenure you have asubaccount so IP2 loan is clearly segregated from the IP1 loan.

In the original question posed here - Can I make an unencumbered IP neg geared ?? NO.
 
Hi,

Wondering whether anyone can explain the rules around borrowing against an unencumbered investment/rental property if you are wanting to negatively gear it?

Specifically, what are the rules/restrictions on what you can use funds you have borrowed for?

Thanks, Terry.

I notice you are in Victoria where the stamp duty laws are generous. If the investment property is also in Vic then you may be able to sell to a spouse at full market value with no stamp duty. CGT may be payable. Spouse can borrow 100% to buy from you and if the remains an investment property the spouse will be able to claim the interest.

Funds from your sale may be used to pay down non deductible debt.

make sure you seek legal and tax advice before doing this.
 
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