PPOR into IP1

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?
 
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.
 
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?
 
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.
 
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
 
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.
 
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