PPOR into IP1

Discussion in 'Accounting and Tax' started by cmafra, 5th Jun, 2015.

  1. cmafra

    cmafra Member

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    Hi SS Gurus,

    I seek your suggestions on how to structure the mortgage/mortgages on my situation for the best finance and tax outcome.

    Actual scenario:
    PPOR - unit with value around 275K , paid in full , no mortgages

    bought an off the plan apartment for 540k (deposit 54k) , I plan to live on this Apto and by the time of settlement (2016) this I will be able to pay an extra 150k cash.

    That leaves an outstanding balance of around 336k.

    What to do next?
    Would it be possible to create 2 mortages,
    Mortgage A = 80% LVR on the unit for 220k (interest only)
    Mortgage B = 116k on the new apartment (interest + principal) to be paid very quickly ~2years

    Any suggestions?
    In this scenario would Mortgage A be tax deductible as it was my original PPOR?
     
  2. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    No. The loan isn't to buy the PPOR it is it ? Its just secured against it.

    If you use the property security for the unit to borrow to buy a new IP then you deduct the interest against the new property acquired. Its how you USE the $ that determines its deductibility. Not where the loan is secured.

    You may be better off selling the old PPOR unit and its likely to be 100% CGT exempt if always was your main residence. Then use $ to repay new unit leaving $60K (non-ded). Borrow higher geared for IPs using new IP for 80% and balance against a LOC on home. Given your LVR would be $60/$545k or 11% you have capacity. That way you can have 100% geared IP.
     
  3. cmafra

    cmafra Member

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    Thanks for sharing your knowledge Paul.

    I tough you could change your PPOR from the unit to the apartment, and create a new mortgage on the unit (Mortgage A) that would be 80% ded.

    So there is no way of turning the unit (initial PPOR) into a new mortgage that is tax deductible without selling it?
     
  4. Terry_w

    Terry_w Member

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    No because you already own it. You cannot borrow to buy something you own. If you mortgage it and get a loan the interest on this loan would only be deductible if the money was used to purchase an investment asset.
     
  5. pinkboy

    pinkboy SS Lookerafterer

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    The only way you could extract the 80% equity/make it deductible/keep it - is to sell it to an entity you control. This will have CGT and SD though.

    pinkboy
     
  6. wylie

    wylie Member

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    Do you own the unit in just your own name? Do you have a partner?
     
  7. cmafra

    cmafra Member

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    I own the property in my name, and I also have a partner.
     
  8. Terry_w

    Terry_w Member

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    Does the partner want to buy it from you at full market value and borrow to do so?
     
  9. wylie

    wylie Member

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    That is where I was heading too. Of course, there are costs involved, but if this is worth holding, then the costs of having a partner buy it gives the partner a tax-deductible loan against the rent it would bring in.

    It also won't cost any more than the cost of selling this and buying a new investment property, so it is worth looking at.