Is this allowed?

Hello,

We have a suburban PPOR, and have just settled on an IP unit.

Is there any reason why we can't move straight into the IP unit ourselves (and rent out the PPOR)? Would this affect our ability to define the unit as an 'investment' down the track?

Cheers.
 
You can certainly move into the unit, but money you borrowed to purchase the unit would no longer be tax deductible.

If you rent out your house, then the money you borrowed for that house would become tax deductible.

If you move later move out of the unit and put a tenant in it, then the loan for the unit will once again become tax deductible.
 
Thanks, Peter.

Yes, that's what I thought.

On the Ppor, is it only the original loan that would be tax deductible? What about money used from a line of credit attached to that property?
 
Thanks, Peter.

Yes, that's what I thought.

On the Ppor, is it only the original loan that would be tax deductible? What about money used from a line of credit attached to that property?

Depends on what the LOC was used for. If it were for investment purposes than it's deductible - if for personal, then it's not.

Cheers

Jamie
 
On the Ppor, is it only the original loan that would be tax deductible? What about money used from a line of credit attached to that property?

When you say original loan, the only bit deductible would be the loan balance as at the time it became an investment property. Eg if you originally borrowed $400k, but after making payments over the years the loan was reduced to $250k, only the interest on $250k is deductible. Interest on redraws or "re-borrowing" would only be deductible if they were for investment purposes.
 
When you say original loan, the only bit deductible would be the loan balance as at the time it became an investment property. Eg if you originally borrowed $400k, but after making payments over the years the loan was reduced to $250k, only the interest on $250k is deductible. Interest on redraws or "re-borrowing" would only be deductible if they were for investment purposes.

Maybe but not always.

Imagine the situation where the original loan was $400k, but it was a LOC with income going in weekly and expenses out weekly. The balance at the time of moving out could be $250k but the deductible portion could be nil.

or

Loan was paid down to $200,000 and then $50k was used to buy a car. Only $200,000 of the loan is associate with the property so only interest on the $200k could be deductible - but it would be even less if the loan is PI.
 
Good point Terry. I should have clarified - I'm talking about your typical P&I home loan purely related to the property and not contaminated with other things. Typically that is the loan used in PPORs (in my experience anyway), although IO are becoming more common nowadays.
 
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