IP to PPOR or not?

[belleran]

We have been talking about building a new house which we would have as an IP for the first 12 months. After this initial 12 months we would move into our new house.
Our current PPOR which is fully paid for could be be converted to an IP and we move back in before the sixth year as per the ato six year rule. We would want to keep this house as our PPOR because it would have the most capital gain. The rent of course would be fully taxable and no tax relief I presume.
Is this a good plan financially or is it better just to sell our PPOR and move into our new house? If we did this we would put the proceeds of the sale into an offset account against the loan for the new house.

 

[Qlds007]

I guess it is a matter of wanting your cake and also eating it and i can fully understand why you would want this.

Have to bear in mind as you correctly stated that whilst you live in the new property the interest on the loan will not be Tax deductible so you go from a cash flow position with no expenditure to a position now with a full non deductible mortgage repayments.

Have you thought about selling the existing PPOR to a Trust or Transferring the shares from Joint Tenants to Tenants in common and then claiming the interest on the share that you buy and using these raised funds to buy the land and start the construction.

Being your current PPOR you wont be liable for CGT and whilst Stamp duty maybe payable depending on which way you end up going if you feel the property will achieve long term capital growth it maybe well worth crunching the numbers.

 

[Lil Skater]

We have been talking about building a new house which we would have as an IP for the first 12 months. After this initial 12 months we would move into our new house.
Our current PPOR which is fully paid for could be be converted to an IP and we move back in before the sixth year as per the ato six year rule. We would want to keep this house as our PPOR because it would have the most capital gain. The rent of course would be fully taxable and no tax relief I presume.
Is this a good plan financially or is it better just to sell our PPOR and move into our new house? If we did this we would put the proceeds of the sale into an offset account against the loan for the new house.

I'd say keep your current PPOR because it can then become an IP and it's fully paid.

Also see these, not sure how relevant?

http://www.somersoft.com/forums/showthread.php?t=58480
http://www.somersoft.com/forums/showthread.php?t=58500

But someone else may find something that's more helpful, i also suggest exploring the older threads there may be something that could really help you.

 

[belleran]

Hi Richard

Have to bear in mind as you correctly stated that whilst you live in the new property the interest on the loan will not be Tax deductible so you go from a cash flow position with no expenditure to a position now with a full non deductible mortgage repayments.
There will be no debt as it will be 100% offset. Is there a problem with this or is it better just to hav the ppor paid off ?

Have you thought about selling the existing PPOR to a Trust or Transferring the shares from Joint Tenants to Tenants in common and then claiming the interest on the share that you buy and using these raised funds to buy the land and start the construction.
Transferring it to a trust means the sale would be subject to CGT.
We are about to settle on the land for which we needed to use approx $60k from a LOC secured against another property and $150k against the land itself. Stamp duty involved in rebuying present PPOR in Tenants in Common may not be worth it unless I am missing something or were you talking about the new yet to be built house?

 

[belleran]

Richard I tryed to put in a blue box your quote but it didn't work. Sorry if it is hard to read.