How to make loan tax deductible for owner occupied property?

E

eternit

Hi,

If I had one property which is their currently only property. Now this property is turned into an investment property because it is interstate. THis property has about $150K worth of equity in it and its worth $315K.

If I wanted to buy another property as PPOR. How can I structure the loan so it is tax deductible?

Like initially I thought using LOC but that wont work as it wont be used for investment hence not tax deductible.....

Thanks.
 
basically looking to decrease the loan amount on the new PPOR and increase the loan amount on the first property which is investment property....
 
Unless you borrow extra money to improve the existing property it's a no go and this would only be effective on the additional borrowings.
An option could be to transfer the ownership of the property from joint to an individual name or to that of a trust. I would suggest talking to your accountant however about this option.
 
converting PPOR to IP

There are ways to do it including opening a line of credit and using that to pay all the repayments and expenses on the IP which frees up your cash which should then be used to pay down the new PPOR loan (preferable in a 100% offset account for easy access later).
This has the effect of reducing the loan on the PPOR and increasing the loan on the IP and this in turn increases the amount of deductible debt versus non deductible.

Do a search as this topic has been covered many many times with some great answers.

It can be done. You just need a good mortgage broker and accountant to help you show you the way.

There are both on this site. Do the search and you'll find some great answers.
 
If the $150K is in an offset account, it can be used on a deposit on a PPOR. The interest on the original loan will bump up again and is fully deductible.

But if the $150K needs to be redrawn or refinanced through a new loan, it's a new loan and the interest on it would not be deductible if used to buy a PPOR.

As Darren suggested, you could allow the original loan to grow and use all your cash to reduce the non-deductible $150K, to reduce your non-deductible debt as quickly as possible. However consider the risks of allowing the loan to go "upside down" in the current credit crunch environment.
 
Sell it to a trust, or if its only in your name sell it to your spouse (or visa versa). Additionally stamp duty might need to be paid if you sell it to a trust rather than your spouse.

First question needs to be. Is the $150k of deductible interest worth it? Quick answer at 8.5% interest rates and a 31.5% tax bracket its a $4016 deduction per year. So stamp duty is going to be about $11.5k so it will take you 3 years just to recoup your money (with out thinking about time value of money). However if it was sold to your wife then it could be worth it. Even if you both own half each, you could sell your half to her and it would be an extra $2000 deduction per year.

SPEAK TO YOUR ACCOUNTANT. this isnt taking into account cgt as im assuming you have used the 6 year rule as ur living in another state...
 
thedude said:
why not add a little more to your post, like maybe basic details regarding the proposed solution.
Click to expand...

Because legaly there is none, they are probably thinking of mudding the waters with a refinance, but what we know, the ATO knows as well and in an audit it will be picked up.
 
I agree the dude why not pay yourself on the back at the same time.

Selling the property into a Trust as has been mentioned and maybe worth consideration depending on numerous factors.

Maybe an independant accountant maybe the way to go.
 
thedude said:
nice self promo...:cool:

why not add a little more to your post, like maybe basic details regarding the proposed solution.
Click to expand...

Hi Thedude,

I didn't add any details of the strategy to my post because I don't know the ins and outs of it. This is a strategy created by Chan & Naylor Accountants And I feel it is better not to pass on information that is inaccurate.

And please let me be perfectly clear here. I work for Chan & Naylor Finance. We are a mortgage broker company. Chan & Naylor Accountants are an Accounting firm that we work closely with.
And to set your minds at ease, I do not get any benefits to promote Chan & Naylor Accountants. I refer to them only if I believe that, for one reason or another they can help answer a question that has been asked.

BV - I can confirm that the strategy I mentioned, but did not go into details about above, has been approved by the ATO.

cheers
 
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