Recently spent a day with a financial institution who specialise in building wealth through property, one scenario put to us was to establish loc on ppor and draw 80k from this to use as deposit on 510k ip, with the idea of approaching different financial institution for balance of purchase price thus isolating ppor from risk of foreclosure etc. This sounded ok, we never went ahead with this suggestion and decided to do no further business with the institution, it was a fee of 5k to be customer for life type setup. However i have been thinking how we could claim the interest on the 80k deposit which is attached to our ppor, as we would be paying interest on it to the first financail institution. Question is; is the 80k tax deductible or do we just wear that expense in this situation which to me seems to be the way it would be.
L.O.C. and tax deductibilty
- Thread starter Shane Port
- Start date
The interest on both the $80k and any other loan you use for the IP is tax deductible, because its purpose is for investment. This is how the ATO view it; the purpose of the loan.
If there is still a loan on the PPoR, then that interest is not tax deductible, and should be kept separate from the new IP section of the LOC for accounting purposes.
You can do all that without paying a $5k "fee for life" as well. Just talk to any of the wonderful Mortgage brokers we have here on this site.
Incidentally; if it's your first IP, then $510k is a lot. The rent is unlikely to be higher than 5% return (just making assumptions) so it would be rather heavily neg geared. Generally, the higher the purchase price, the less the rent yields, as the pool of renters is smaller at the top end in price.
You can do just as well, and usually better with 2 x $250k properties; better yields (if you look in the right areas), you still get all the same tax deductions (proportionate), same depreciation deductions (proportionate), and you can often get the same or even better cap growth.
Not only that, you get a better hedge on vacancies; it's less likely to have both properties vacant at the same time.
If there is still a loan on the PPoR, then that interest is not tax deductible, and should be kept separate from the new IP section of the LOC for accounting purposes.
You can do all that without paying a $5k "fee for life" as well. Just talk to any of the wonderful Mortgage brokers we have here on this site.
Incidentally; if it's your first IP, then $510k is a lot. The rent is unlikely to be higher than 5% return (just making assumptions) so it would be rather heavily neg geared. Generally, the higher the purchase price, the less the rent yields, as the pool of renters is smaller at the top end in price.
You can do just as well, and usually better with 2 x $250k properties; better yields (if you look in the right areas), you still get all the same tax deductions (proportionate), same depreciation deductions (proportionate), and you can often get the same or even better cap growth.
Not only that, you get a better hedge on vacancies; it's less likely to have both properties vacant at the same time.
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L.O.C and tax deductibilty
Thanks Marc
Thats makes sense i guess it would just be a matter of calculating the interest percentage on the 80k portion of the ppor loan. The ip in question is our third and is in west end brisbane i have discussed it earlier in the coffee lounge. It is a two b/room unit in the new riverpoint development to be completed mid 09. I agree it is a lot of money but we are looking at short term C.G here, with no outlay till completion date, hope it pans out that way. Rent should be in the $500 per week range in that part of town.
Shane
Thanks Marc
Thats makes sense i guess it would just be a matter of calculating the interest percentage on the 80k portion of the ppor loan. The ip in question is our third and is in west end brisbane i have discussed it earlier in the coffee lounge. It is a two b/room unit in the new riverpoint development to be completed mid 09. I agree it is a lot of money but we are looking at short term C.G here, with no outlay till completion date, hope it pans out that way. Rent should be in the $500 per week range in that part of town.
Shane
The trick here is to get a separate loan for the investment portion. For instance say your PPOR is valued at $500k & you owe $300k, you should be able to get a separate LOC for $100k. This will keep your debt level at 80%. Use your new LOC for investment purposes ONLY. This will make accounting simple as ALL the drawings from that loan are tax deductable.
