Lenders Mortgage Insurance.... deductable?

[Paterson00]

Hi all,

I think this may be my first post to the forum. I registered in Dec but then enjoyed xmas and now I am getting back into learning about property investing before taking the jump on my first proper investment property. I say proper because I have recently moved from the uk and rent out my old house there and have no intentions of getting rid of it, especially with the exchange rate the way it is at the moment. My income from it just keeps getting bigger.

Anyway, my question today is about LMI. I was recently told that it is tax deductible as a cost of borrowing just like the interest on the mortgage is and that makes sense. My question is about how it is claimed back. I work like many people and I am thankfully a high earner putting me in a higher tax bracket. I was told that the LMI is returned to you as 20% of its initial value per year for 5 years and you get whatever %age you are taxed at of the 20%. Does that make sense?

$8000 (LMI) / 5 (years) = 20% = $1600 so I would get 38% of $1600 per year for 5 years equaling $608 per year. Is that about right. Until today I did not even know it was claimable so that's nice to know for a start.

Is it claimable as a variation so that you can get at it weekly like you can with depreciation to help increase your cash flow?

Thanks in advance and I hope you can help to sort this out for me. I look forward with chatting with you and maybe even meeting some of you.

I live in Mandurah in WA.

All the best

Paul

 

[Terry_w]

LMI may be claimable over 5 years or the life of the loan if shorter.

 

[Paterson00]

Thanks Terry and am I right about the tax margin reflecting what %age of the LMI I would get back?

 

[geoffw]

Does it depend on where you get taxed?

I don't know the English laws, but in the reverse situation, an Australian working in England but with a house still in Australia may possibly still be judged to be an Australian resident for tax purposes- even though there is no real intention to move back.

Edit: http://www.hmrc.gov.uk/international/residence.htm

 

[Terry_w]

If LMI is say $10,000 you could claim $2000 per year. This would reduce your taxable income - including rent and other deductions.

Your calculations are not correct because you haven't taken into account rental income.

 

[Colin Rice]

$8000 (LMI) / 5 (years) = 20% = $1600 so I would get 38% of $1600 per year for 5 years equaling $608 per year. Is that about right. Until today I did not even know it was claimable so that's nice to know for a start.

Looks correct to me.

 

[Paterson00]

I live in Oz and am taxed as an Australian resident.

So lets say the house was negatively geared slightly, the deduction could enforce a rebate which, for the first five years could make the property cash flow +ve the same way a depreciation could too? Is that right?

 

[geoffw]

I live in Oz and am taxed as an Australian resident.

Ok. Looking at the link I posted, you British government is far less hungry to tax people working overseas than our own government.

 

[DaveM]

Riddle me this.

I buy an IP and pay LMI and claim deductions at 20% pa. After 3 years I refinance the loan and pay new LMI and claim that at 20% instead. What happens to the remaining 2 years LMI apportionment from the first loan, is it lost or can you can claim that still.

 

[Terry_w]

Riddle me this.

I buy an IP and pay LMI and claim deductions at 20% pa. After 3 years I refinance the loan and pay new LMI and claim that at 20% instead. What happens to the remaining 2 years LMI apportionment from the first loan, is it lost or can you can claim that still.

You would claim the LMI in the year you exit the loan. Then the new LMI over 5 years again.