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From: Mike .


Converting family home to an IP
From: Scott
Date: 13 Oct 2000
Time: 15:24:06

I have a large amount of equity in my current family home, however the home is small and we need to update. Can I do the following:

1. get the property re-valued and approval from the bank to have a LOC equal to 90% of the value of this home.
2. Rent this property
3. Redraw enough money from this mortgage to keep it neutrally geared (or slightly negative geared)
4. Use the money pulled out plus an additional mortgage to buy a new family home.

I have run the numbers through my spreadsheet and I am able to do it based on typical LVR and DSR from the bank. However, are there any legal difficulties in do this? To move up to the property I wish to purchase I may need to draw a lot from the property and therefore the property may be slightly negative geared. Is the interest on this loan tax deductible?

thanks in advance, scott

 

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Ian W

Reply: 1
From: Mike .


Re: Converting family home to an IP
From: Ian W
Date: 13 Oct 2000
Time: 15:43:45

Hi Scott

Same reply as 6/10/00

You ex family home, as IP2, will probably always be cashflow positive.

If you borrow against it, to finance a new primary residence, the ATO looks at the PURPOSE of the loan, NOT THE USAGE of the security (property) when determining the deductibility of the loan interest. That is, the interest on a loan to buy your own residence is not tax deductible.

Try going into the forum archive and doing a search

Try earlier forum entries for a bit of light reading (there are more)

"Claim Previous Home Interest". Sue 12/11/99

Converting current home into an IP? Richard 6/27/00

Time to move...Any suggestions Don 6/5/00

Ian W