Hi all,
We are in the middle of sorting out finance for our first Australian IP.
We are using some equity from our PPOR to put down a 20% deposit & cover costs, and the remaining 80% will come from the new loan against the IP.
Effectively we'll be borrowing 100% + costs this way, so we can maximize the tax deduction for the loan.
Initially, we were going to split the existing home loan to create the 20% investment part, and a new loan for 80%. The mortgage assessor called me yesterday and advised that we make the new loan for the whole 100% (still secured partly against the PPOR to access the equity). The reason for this was so that we don't loose the preferential interest rate for 1st home borrow on our PPOR. She said if we split that loan, we'd loose the preferential rate on the PPOR part.
So, sounds ok to me so far - end result is still the same, one new loan for 100% +costs, partly secured against the PPOR to enable us to not have to use our savings and be able offset all for tax, plus no LMI to worry about on the new place.
I had read a little about loan contamination regarding tax, so have a question.
The new loan is straight forward it will be a new account with an interest only repayment to make each month. Our PPOR loan is part of a 100% offset account.
Is it acceptable to have the rent from the IP paid into our current account that offsets against our PPOR, then deduct the whole interest amount from our tax return for the IP loan? Or, do we have to set up a new current account for the IP rent to be paid into so that any interest that the rent makes can be assessed against the IP loan itself? We're only talking tiny numbers here, but want to make sure we have things set up properly.
Thanks.
We are in the middle of sorting out finance for our first Australian IP.
We are using some equity from our PPOR to put down a 20% deposit & cover costs, and the remaining 80% will come from the new loan against the IP.
Effectively we'll be borrowing 100% + costs this way, so we can maximize the tax deduction for the loan.
Initially, we were going to split the existing home loan to create the 20% investment part, and a new loan for 80%. The mortgage assessor called me yesterday and advised that we make the new loan for the whole 100% (still secured partly against the PPOR to access the equity). The reason for this was so that we don't loose the preferential interest rate for 1st home borrow on our PPOR. She said if we split that loan, we'd loose the preferential rate on the PPOR part.
So, sounds ok to me so far - end result is still the same, one new loan for 100% +costs, partly secured against the PPOR to enable us to not have to use our savings and be able offset all for tax, plus no LMI to worry about on the new place.
I had read a little about loan contamination regarding tax, so have a question.
The new loan is straight forward it will be a new account with an interest only repayment to make each month. Our PPOR loan is part of a 100% offset account.
Is it acceptable to have the rent from the IP paid into our current account that offsets against our PPOR, then deduct the whole interest amount from our tax return for the IP loan? Or, do we have to set up a new current account for the IP rent to be paid into so that any interest that the rent makes can be assessed against the IP loan itself? We're only talking tiny numbers here, but want to make sure we have things set up properly.
Thanks.