Selling a property and repaying loans

Hi all
I'm about to put my house in Nowra on the market and realise some post development profit. I understand that all loans secured to the property must be repaid or a new security found. No issue there.

My conundrum is another loan secured to another property. I used about $50,000 of this loan to develop my selling property. I understand I don't have to pay it back but I need to because the second I sell its no longer tax deductable.

Issue is it's fixed for another year.

Can I simply pay back all my secured loans and park the $50,000 in a sterile savings until the fix is over( yes I know it won't be tax deductable for this period.)
Will the tax man still consider a connection between the sold investment and the parked funds etc

Cheers

Steve
 
Yep agree but at completion of the fixed period. If I repay the $50,000. Does the tax man consider the nexus sufficient so that the remainder of the loan( spent on current investments still held) remains deductable ???

Cheers
 
I would assume its ok as selling the house and parking some funds in a savings account would still be considered an investment( although poor) as long as it's not muddled with non investing uses or funds.

Cheers
 
I would assume its ok as selling the house and parking some funds in a savings account would still be considered an investment( although poor) as long as it's not muddled with non investing uses or funds.

Cheers

Nope and nope.

Not commerical to borrow at 5% to invest at 3%.
 
Yes I know not a smart investment but I can't repay it yet.
If the loan was not fixed I would just repay the $50,000 used on the sold property leaving the remainder tax deductable as it was spent on investments I still have. Issue is it's fixed for 12 months.
Now I know it may not be tax deductable for the 12 month period but would the tax man be happy with me paying the $50,000 after the fixed period. That is would the remainder still be deductable. I assume it would as I'm paying a portion off not taking funds out to spend.
 
Yes I know not a smart investment but I can't repay it yet.
If the loan was not fixed I would just repay the $50,000 used on the sold property leaving the remainder tax deductable as it was spent on investments I still have. Issue is it's fixed for 12 months.
Now I know it may not be tax deductable for the 12 month period but would the tax man be happy with me paying the $50,000 after the fixed period. That is would the remainder still be deductable. I assume it would as I'm paying a portion off not taking funds out to spend.

Its up to your when you pay the loan off, but shouldn't claim the interest after the income stops.
 
Have you considered simply taking the hit on the break costs and paying it off anyway? It would probably cost less than another years interest..

You should ask your accountant, but the break costs may be tax deductible as well.
 
Its up to your when you pay the loan off, but shouldn't claim the interest after the income stops.

Let's say the funds left over from the sale are to be used for another investment. They are put in an account for a few days or weeks until another income producing asset in purchased. The intention is to continue to use the loan to generate income and it is just redeployed. How does this effect the deductibility ?
 
Let's say the funds left over from the sale are to be used for another investment. They are put in an account for a few days or weeks until another income producing asset in purchased. The intention is to continue to use the loan to generate income and it is just redeployed. How does this effect the deductibility ?

Once put into a savings account they are no longer borrowings and interest no longer deductible. Asset sold so income no longer deductible as well. It is just cash.
 
What if the $50K was used to buy shares immediately on settlement. Would that mean the loan interest is still deductible?
 
What if the $50K was used to buy shares immediately on settlement. Would that mean the loan interest is still deductible?

Wouldn't of thought so. As you have simply used cash IMO. Loan would need to be repaid, redraw or new loan to purchase shares.
 
Wouldn't of thought so. As you have simply used cash IMO. Loan would need to be repaid, redraw or new loan to purchase shares.

Yes, I don't see how the original loan could relate to the purchase of shares unless the sale of the property resulted in the loan being paid down and then redrawn for the share purchase.
 
Wouldn't of thought so. As you have simply used cash IMO. Loan would need to be repaid, redraw or new loan to purchase shares.

Yes, I don't see how the original loan could relate to the purchase of shares unless the sale of the property resulted in the loan being paid down and then redrawn for the share purchase.

That makes sense. It is the fact the loan cannot be paid down that is the problem (without paying break fees).
 
That makes sense. It is the fact the loan cannot be paid down that is the problem (without paying break fees).

Main point being there is a loan where the asset has been sold. No connection between loan and the cash in the bank, I think I have it now Terry.

Different arrangement for discussion. A loan was draw and placed in an empty account and then used for asset purchase (property, shares). The connection between loan and asset is maintained OK?

Such an arrangement may also be common when re-drawing a lump sum from a loan and transferring to a CMA account and share trading. The cash is used to buy and sell shares, and some just earning interest as cash. Where would that leave the deductibility of the loan?
 
What if the $50K was used to buy shares immediately on settlement. Would that mean the loan interest is still deductible?

You might be able to do this if it was a 'substitution of security'. In normal cases you'd sell one house and buy another one of the same value straight away. You simply move the loan from one property to another.

Practically though this won't work because lenders wouldn't accept shares as security for a home loan. I'm just trying to think creatively. Even in this scenario and even if it was another property and not shares, I can see where the lawyers might try to make an argument that the loan was no longer deductible.
 
Different arrangement for discussion. A loan was draw and placed in an empty account and then used for asset purchase (property, shares). The connection between loan and asset is maintained OK?

Such an arrangement may also be common when re-drawing a lump sum from a loan and transferring to a CMA account and share trading. The cash is used to buy and sell shares, and some just earning interest as cash. Where would that leave the deductibility of the loan?

My view is that the connection between borrowing and investing is lost if the money goes into a savings account. But it seems the ATO accept that the borrowed funds can be still traced - according to one private ruling, which canot be relied upon, but could be used as a guide.
 
What's the break cost ?

How much interest will you pay on the 50 K for the year ?

I would expect the break costs to be less than the interest ..

If you park the money and get interest , how much tax will you pay on that ?

Cliff
 
What's the break cost ?

How much interest will you pay on the 50 K for the year ?

I would expect the break costs to be less than the interest ..

If you park the money and get interest , how much tax will you pay on that ?

Cliff

It sounds like the $50K in question is part of a larger loan secured by another property (as I read the first post anyway). So it may be a break cost on a much larger loan, which would cost more than the cost for the accountant to apportion this loan to suit the circumstances at tax time.
 
It is part of a $130,000 loan. The rest was used on another property.
I think I'm fine the more I think about it. There's no risk of " infecting "the funds because I will be paying an amount off not withdrawing. Small risk of paying interest on $50,000 for 12 months that's not deductible but this may be still be deductible. I use to have an account where I parked funds between share purchases. My accounted said this was fine and it remained deductible as all funds were still for investing only and the savings account itself was considered an investment. A poor one sure but still an investment.

Cheers
 
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