Moving equity from Investment prop to Home

[hb40]

Hi,

I believe this is a common issue so I'm hoping someone has some suggestions

Myself and my wife own one investment property each.

We have individually paid off a substantial part of our properties. So we have equity in these two investment properties.

We would now like to purchase our home.

We're told that if we take out the equity from our investment properties and put it into our new home we can not claim negative gearing on that portion of the loans.

For example, if we have $200k equity on an investment property and we take out that equity by increasing our loan on the investment property, we can no longer claim negative gearing on that portion of the loan because it's being used to fund a home and not an investment property.

Here are the options that we believe we have:

1) Transfer the investment properties into each other name.
This will release the equity. We would have to pay capital gains tax on one of them only. The other is considered our residence. We will not have to pay stamp duty as the transfer would be "For love and affection".

This seems like the best option.

2) Rent out the new property for 6-12 months, restructure the equity from the investment props into this new purchase and move into it further down the track.

Because it's rented out it would be treated as an investment, we can move equity into it and claim negative gearing on that portion.

Not sure if this is 100% ok to do?

3) Refinance
If we refinance does that automatically restructure the equity?
From what we've heard it doesn't sound like it does.


So basically option 1 seems like the best option.

Obviously to avoid this problem in the first place it's best to put any extra repayments into an offset account that way you can move the funds around later on

Any suggestions welcomed!

Thanks

 

[alexlee]

With say $200k equity at 8% interest and a 30% marginal rate, you're talking about 'cashflow' benefit of $4,800 a year.

How much is it going to cost you in CGT on one property and stamp duty on both properties to do what you're suggesting?
Alex

 

[hb40]

alex

Alex,

the equity figures I gave are an example only So both the equity and tax bracket are higher.

Also there's no capital gains or stamp dutyon one of the investment properties (it's the official residence as we lived there when it was first built and then went OS while renting it, and no stamp duty as we're married).

So the benefit is significant.

The question is, what the best way to move the equity from the investment property into the future home while maintaining maximum negative gearing for the loan?

 

[asdf]

Basically you can't unless you sell your IPs to extract the equity out. The slower process if capitalising interest and IP expenses while you build a war chest through wages and rent. The other way is draw down equity and buy high yielding investments like LPTs or Navra units to increase distribution cash flow.

As for your options:
1) I'm not sure if you can do a transfer free of stamp duty unless its under a separation situation. The rest don't quite understand.

2) Once you move into your new home, the interest previously deductible will cease to be deductible because you no longer generate assessable income. ie. rent.

3) You refi IPs to extract equity. What you do with the equity will dictate the deductibility.

Perhaps go for a consulation with Julia from Bantacs. Shes great at this type of stuff.

 

[wylie]

We have our own PPOR plus two IPs all held by the bank to secure several different loans. The security is all lumped together (which many will say not to do, but we have done this to enable us to borrow more - one day we may need to "undo" the cross collateralisation but no issues yet).

These three houses secure two large investment loans which are tax deductible and our housing loan which is not. As long as the deductible and non-deductible loans are kept totally separate, you should be able to do similar, or am I missing something in your question?

Wylie