Pre-paying IP Interest in Advance.

From: Rixter ®


Has anyone got any ideas on how pre-paying the interest on an Ip in advance works? and the pro's & con's of doing it?

Happy Investing,
Rixter :)
 
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Reply: 1
From: Dale Gatherum-Goss


Hi Rixter!

Yes, you pay a full year's interest up front and then claim the entire payment as a tax deduction. For example, between now and June you continue to pay the required interest each month. In June though, you ask the bank for a discounted rate if you pay the next 12 months in advance and then simply pay that amount. This way, you would effectively claim 2 years worth of interest as a tax deduction in the one year.

Have fun

Dale
 
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Reply: 1.1
From: Mark Laszczuk


Dale,
Would you recommend this sort of thing if you can do it, as an alternative to say, leaving your money in the bank? Would your money be working harder for you this way?

Mark
'no hat, some cattle'
 
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Reply: 1.1.1
From: Ron Bennie


Hey Mark
money left in the bank usually won't be working at all. If your income is going to to be higher this year than next, then prepaid would probably pay depending on your tax rate. ooor you could buy another IP with the dough.
By the way that"No hat some cattle"did you see that on Raging Bull regarding NEET, if you did email me I need a sympathetic ear to speak to.
regards Ron B
 
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Reply: 1.1.2
From: Dale Gatherum-Goss


HI Mark!

It is a strategy that works for some. It means that you do not have to pay any more interest for another year, if you wish. It means that you might get a little more discount on your interest rates (which is always good) and it means that you might get up to 48.5% of your extra payment back as a tax refund.

I guess it depends upon what your priorities are and what you are trying to achieve.

It does work and if you have the cash lying around, yes, I am comfortable with this idea.

Have fun

Dale
 
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Reply: 1.1.2.1
From: Michael G


Hi,

I guess its what you want to do, say you are a renovator, it may be possible that you have a few buy/holds and do a few renos.

Every 2nd year you could sell a reno and use the cap gain to prepay interest on your buy/holds. 'cause you incurring a larger debt the year you sell your reno's it may counter your cap gains tax liability.

This one is really for a spreadsheet, but since I'm in no position to make use of this idea, I can't be bothered creating one :p

Michael G
 
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Reply: 1.1.2.1.1
From: Mark Laszczuk


Thanks for the replys guys. At the moment, my partner and I are looking for a way to make our money work harder, rather than leaving it in a back account (something like a cash management account, not a normal account). Guess that's something we can discuss on Thursday, Dale.

Mark
'no hat, some cattle'

P.S. the quote didn't come from Raging Bull, but from a post a few months ago. Can still offer a sympathetic ear though...
 
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