ownership title for investment property

Hi,

we are thinking of purchasing our first IP. In terms of ownership of our IP, we are thinking that it will only be owned by my hubby, as it is negative gearing and he is higher income than me. However, the loan will be in both me and my husband name, as we use our own house as security/ mortgage (our house is in both our names).

Question #1: As the property is owned by my hubby, I believe that he can claim deduction on all interest expense, even though the loan is in both our name. Correct? Is there any document that I need to keep?

Question #2: some friend advised us that it would be better that I hold a nominal % of ownership, e.g. 1%. The advantage is that if the IP become positive cash flow in the future, then we can vary the % ownership such that me (lower income) will have higher % of ownership, this can be done relatively easily without incurring stamp duty (as opposed to the IP owned 100% by my hubby and then transfer to me). is that true?

thanks
 
Question #1: As the property is owned by my hubby, I believe that he can claim deduction on all interest expense, even though the loan is in both our name. Correct?
Yes correct. The deductions & the rental income belong to the owner on title.

Is there any document that I need to keep?
Marriage certificate? :D

Question #2: some friend advised us that it would be better that I hold a nominal % of ownership, e.g. 1%. The advantage is that if the IP become positive cash flow in the future, then we can vary the % ownership
Your friend has given you incorrect advice. You cannot vary the % ownership without "selling" various %'s of the property. This will trigger stamp duty payments and CGT events.

such that me (lower income) will have higher % of ownership, this can be done relatively easily without incurring stamp duty (as opposed to the IP owned 100% by my hubby and then transfer to me). is that true?
No, untrue as mentioned above.

The "problem" with buying in hubby's name now is that he gets heaps of neg. gearing deductions now. BUT at some point in the future the rents will increase and the IP will go cash flow positive. Then the rental income will be taxed in the hands of the highest tax payer. :(

This is OK if you leverage up this property again and draw down equity to purchase more and more IPs as time goes on.

Consider getting tax / accounting advice on structures in which to tax effectively hold the property long term.
 
Hi

I would suggest only raising part of the IP price ( 20 % ) and costs against the home, and the balance agains the IP unless the IP is an unusual security

ta
rolf
 
Having the property in the higher income earner's name makes sense if you are never going to sell or you don't expect any capital growth. If you sell and then all of the CG has to go onto higher income earners tax return, then the extra CGT can exceed the PAYG tax saved during the period of investment.

RPI
 
The problem with these decisions is always the lack of a perfect crystal ball to see the future!

We normally recommend joint names because of the CGT issue mentioned already, clients hate CGT!

You should talk to your Accountant and make sure you understand the tax consequences of your decision both now and in the future.
 
You are much better off with the losses being claimed in the name of the highest income earner as the cash flow benefits help support the losses while running the property. Those benefits can help you acquire a more expensive property, make buying the 2nd rental that much easier or give you more room to breathe.

The capital gains you pay later, if you ever sell, is discounted and not as much as most people think it will be. I've had many appointments recently with people scared about their capital gain when they go to sell a rental and the common phrase I hear after I've done the calcs is "Is that all?"
 
I guess in that circumstance, regarding CGT, its best to sell in the year you retire or stop working full time (if thats what you did) & earning a good income. That would save atleast a little on tax.
 
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