LoC - Simple!

[TheShuffler]

Super quick question - I am about to set up a LoC and was intending to secure it against an IP and PPoR havng a total limit of circa $150k. Purpose of LoC is for deposits on further IP's and potential associated IP costs only.

Does having the LoC partly secured against my PPoR effect the tax deductability of the interest on the LoC?

I do not intend to use it to prepay interest or anything else like that.

Thanks in advance.

 

[alexlee]

If you use the LOC for income producing purposes, then the interest will be deductible. The use is what determines deductibility, not the security. However, because it's partially secured against the PPOR, you have to be careful if you want to repay the LOC.

I don't know why you think prepaying interest might be an issue. If it's to prepay interest on a loan that is deductible, then the interest on that payment is also deductible.

 

[TheShuffler]

Thanks. Can you explain though why I would need to be careful if I wanted to repay the LOC?

 

[The Sniffer]

Why not get two lines of credit. One against each property so they are not cross collateralised.

For example - you might take a 50k and 100k - if total debt against each property is say 80% then they don't need to be crossed.

As per previous post it is the use of funds rather than property used as security that will determine tax benefits.

This way you have more flexibility in the future.

Same same but different. Better!