Fixing wrong financing plan

I've got great info from reading this forum, unfortunately, I did not come across this forum much earlier.
After reading much of the thread, I realised I've taken a completely wrong move. Rather than sobing about it, I want to try to get the most out of it, and needs help.

My situation is, I have a PPOR that have been completely paid off, and unfortunately, mortgage has been discharged.
Now, I'm looking to move out, and change this to an IP, and in the process of buying a new PPOR.

I've been told 2 completely different info. My accountant say there's pretty much nothing I can do to reap the benefit from my 1st PPOR (can't claim interest).
My broker says I could tap on the equity on the 1st PPOR and buy an IP on it, and get an tax benefit from interest payment on both property.

I'm completely confused. Finance and math is not my strong point.
Sorry if this is too confusing.

Cheers.
 
Tax deductability of the interest of a loan depends on the PURPOSE of the loan. Not on the SECURITY.

You can use the SECURITY of your existing house to get a loan for the PURPOSE of some other investment, this will be tax deductable.
 
You can safely extract 80% of your equity for investment purpose like deposit for IPs or shares. Interest on that 80% can be claimed.
 
They are both correct because they are saying different things.

Interest is generally deductible if the borrowed money is used for investment. So borrowing against the main resident would be deductible if the money is used to purchase an investment property. so the broker is correct

But borrowing against the property and using the funds to purchase a new main residence would not make the interest deductible even if the old main residence was rented. This is because the use of the money is for a private expenses. Accountant is correct.

I guess what you want to ask is how to borrow against the old main residence and use the money on the new main residence and claim the interest.

If the current main residence is in NSW and it is owned by one person this person may sell 50% of the property to their spouse and not incur stamp duty. This spouse may borrow to buy the 50% and they may be able to claim the interest on this loan. The selling spouse can then use the funds to buy the new main residence.
 
My situation is, I have a PPOR that have been completely paid off, and unfortunately, mortgage has been discharged.
Now, I'm looking to move out, and change this to an IP, and in the process of buying a new PPOR.

I've been told 2 completely different info. My accountant say there's pretty much nothing I can do to reap the benefit from my 1st PPOR (can't claim interest).
My broker says I could tap on the equity on the 1st PPOR and buy an IP on it, and get an tax benefit from interest payment on both property.
Without wanting to give tax advice, in this scenario the accountant is correct, the broker isn't (you should not take tax advice from a broker anyway, says the broker who's not currently giving you tax advice ;)).

By paying off your existing PPOR, you're created a lot of equity. If you draw on the equity in your current property to buy a new PPOR, the purpose of this equity draw is to buy a PPOR which is not an investment. Thus you can't claim deductions on the loan.

You can structure the new mortgages to avoid the same problem in the future, there's not really anything you can do about the existing mortgages at this point in time.
 
Thanks for all the advice.
The spouse idea is also very useful.

So from what I gather, if I draw on the equity of my 1st PPOR, then use this to buy an IP. I could get a tax deduction on the interest of this IP, am I correct?

And, if I change the purpose of this 1st PPOR, to an IP. Then how will this be treated, there would not be double dipping on the interest right?
Where would the tax deduction on the interest be applied? On the IP that I bought using equity from 1st PPOR? or from the 1st PPOR that is changed to an IP now?

Would selling this 1st PPOR be a better option for me financially?

FYI - I dont really need the money at the moment, hence haven't thought of selling them. The new PPOR will be Macquarie bank LVR 70%, with 4.44% interest.

While we're on the topic, if I rent out this PPOR (PPOR to IP), and only rent them out for 6 years or less, would I still be exempt from CGT due to the 6 years rule?

Thanks heaps.
 
Yes your first question is correct you can claim the interest as the money you borrowed is to invest.
Your PPOR is paid off though and if you turn it into an IP then you cannot claim the interest on it because you are not paying any.

Terry offered a good suggestion but for me personally and I always say this is what is driving your decision to want to keep this as in IP? If you sell it you will have minimal exit costs (agent fees) and then to enter back in you will have entry costs (stamps) but even with this you may genuinely be much better off buying in a different market.
Remember your turning your PPOR which is an emotional investment into a business transaction which is an IP. Crunch the numbers, if you can get a better return elsewhere with more upside then do it.
 
Thanks for all the advice.

So from what I gather, if I draw on the equity of my 1st PPOR, then use this to buy an IP. I could get a tax deduction on the interest of this IP, am I correct?
If you borrow against this PPOR then you could get a tax deduction.


And, if I change the purpose of this 1st PPOR, to an IP. Then how will this be treated, there would not be double dipping on the interest right?
It would be irrelevant whether this PPOR becomes and IP or not as the loan relates to the new IP which you would have purchased.



Where would the tax deduction on the interest be applied? On the IP that I bought using equity from 1st PPOR? or from the 1st PPOR that is changed to an IP now?
Interest would relate to the new IP and be deductible against this.


Would selling this 1st PPOR be a better option for me financially?
Maybe
It?s a matter a crunching the numbers to find out. There will be a cost to selling, but an ongoing benefit so see how long it would take to recoup the costs and then make a decision.
While we're on the topic, if I rent out this PPOR (PPOR to IP), and only rent them out for 6 years or less, would I still be exempt from CGT due to the 6 years rule?

Thanks heaps.
It could possibly be exempt, but only 1 property can be exempt for any one period in time.
 
Alright, I think this gives me a clearer understanding of what will happen in these scenario and what I need to do.
Given my circumstances, selling sounds like a considerable option given the high prices in Sydney (where my PPOR is), even with the cost involve. It would still give me upwards of $100k gain.
But, unless I found good IPs, it'll be wasted money.

Thank you very much everyone.

Now I could go back focusing on which homeloan I should sign up to.
Then, get on to my homework of finding good IPs.

Thank you guys.
 
Now I could go back focusing on which homeloan I should sign up to.
Then, get on to my homework of finding good IPs.
This is fraught with danger. You want to have a property portfolio yet you want to source your own home loans?

If you take anything away from this thread, do yourself a massive favor and contact one of the brilliant brokers on here. A few have already replied to your post.
 
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