PPOR into IP1

[cmafra]

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?

 

[Paul@PFI]

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.

 

[cmafra]

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?

 

[Terry_w]

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

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.

 

[pinkboy]

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

 

[wylie]

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

 

[cmafra]

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

 

[Terry_w]

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

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

 

[wylie]

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

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.