Tax deductability on old PPOR with the old PPOR paid off.

[frehnejc]

Hi,
I have a friend that paid off their PPOR then bought another PPOR and moved the finance to it and rented out the old PPOR. They say they are claiming the interest on the old PPOR as all the finance is on the house.
Is the interest on the old PPOR that is now an IP fully tax deductable even though it was paid off?

 

[Propertunity]

In a word, NO.

 

[mja]

Hi,
I have a friend that paid off their PPOR then bought another PPOR and moved the finance to it and rented out the old PPOR. They say they are claiming the interest on the old PPOR as all the finance is on the house.
Is the interest on the old PPOR that is now an IP fully tax deductable even though it was paid off?

Hell no.

The ATO look at what the intent for the finance is, not the security it is secured against. The money is for a personal reason, not an investment one, so it's not deductible.

 

[greysuit]

frehnejc,

The 'no' and 'hell no' answers would generally be correct. However; there could be a scenario wherein if one partner buys out the other, then they could create a deductible loan against the old PPOR whilst the cash is used for the new one.

Cheers.

 

[HDTitanic]

Hi Greysuit,
Could you please explain further.

 

[Propertunity]

Hi Greysuit, Could you please explain further.

I think it may happen like this:

A & B own their PPOR outright in 50% ea shareholdings.

A takes out a loan to buy out B's 50%.

PPOR now totally owned by A. (well 50% lending from bank too)

A turns it into an IP and claims interest on the loan taken out (albeit for only 50% of the value of the property) This interest is tax deductible.

B uses the cash from his sale to A as a deposit on an IP, borrowing most of the funds. The interest on this loan is tax ded. also.

A & B go rent someplace or buy another PPOR.

A & B need to be taxpayers for this to be tax effective.

A has a loan of only 50% LVR on the ex-PPOR now an IP. A could access more equity from this and use this as a deposit on another IP or as a JV purchase with B on IP or PPORs.

 

[greysuit]

Propertunity,

Yes, that is more or less what I was getting at. Also works (and better) when the property used to be in just one person's name, and is bought out by the other.

Cheers.