PPOR to IP and IP to PPOR

[Chromium]

Folks,
I am after some preliminary accounting advice on converting PPOR to IP and converting IP to PPOR. (I will seek a professional advice once new year begins)

Background.

PPOR bought in 2003 @ 395K (valued conservatively @ 420K now )
Initially borrowed 328K from CBA. Now owing 255K.

In June 2008 bought IP worth 315K with CBA loan of 260K and borrowed 63K against PPOR.

Now we are planning to move into IP (just after new year) and rent out PPOR. We expect rent to be around $400/wk.

How does accounting works in this regards ?
Do I have to advise ATO about these changes ?
Do I have to advise CBA about these changes ?
Any other pitfalls I have't considered ?

 

[jrc77]

PPOR bought in 2003 @ 395K (valued conservatively @ 420K now )
Initially borrowed 328K from CBA. Now owing 255K.

In June 2008 bought IP worth 315K with CBA loan of 260K and borrowed 63K against PPOR.

Now we are planning to move into IP (just after new year) and rent out PPOR. We expect rent to be around $400/wk.

How does accounting works in this regards ?
Do I have to advise ATO about these changes ?
Do I have to advise CBA about these changes ?
Any other pitfalls I have't considered ?

Quick question - with your current PPOR (which is becoming the IP) - have you used a redraw facility on the loan at all?

Regards,

Jason

 

[Chromium]

Quick question - with your current PPOR (which is becoming the IP) - have you used a redraw facility on the loan at all?

Regards,

Jason

Hi JRC,

Thanks for your query.

By redraw as in ...redraw the money to buy luxuries...?? In that case. No.
By redraw as in ...redraw to buy IP ?...In that case. Yes.

To clarify further. Initially borrowed 328K from CBA to buy PPOR. Paid it down till 255K. Then borrowed 63K again to buy IP. So interest on that 63K is tax deductible. (since it is still tenanted at the moment ) but it may not be when I move into it in the new year (as per my understanding)

 

[The Y-man]

To clarify further. Initially borrowed 328K from CBA to buy PPOR. Paid it down till 255K. Then borrowed 63K again to buy IP. So interest on that 63K is tax deductible. (since it is still tenanted at the moment ) but it may not be when I move into it in the new year (as per my understanding)

I would agree with your understanding - the deductibility will be lost.

You'll also need to consider CGT mpacts.

Cheers,

The Y-man

 

[Chromium]

I would agree with your understanding - the deductibility will be lost.

You'll also need to consider CGT mpacts.

Cheers,

Hi Y-Man,

CGT..?? I am not selling any properties. As per my understanding CGT will only kick in if I sell.
Also.
Yes.
My tax deductibility will reduce but since my PPOR will become IP, I can claim tax deductions on 255K loan. Am I correct ?

 

[RumpledElf]

If you go back through similar threads on this forum - there are a lot - you'll find a common bit of advice comes up:

If you have a PPoR paid down quite low, as you do, with possible iffiness on redraw and whatnot, instead of making it into an IP the advice is usually to sell it (avoids CGT if you do this before you let it out), put the settlement funds into whichever house will be your new PPoR (preferably in an offset account) and then buy a new IP with a maximum sized deductable loan.

On the other hand, if you are near retirement or are more interested in income not deductions, don't change anything. Which is what I keep telling myself as I have an ex-PPoR with a small loan