Transferring mortgage

I wish I'd purchases "More Wealth" years ago, it might have prevented me making a few mistakes along the way. I've got a couple of question regarding 1 of those mistakes...

Situation 1 details -
A few years ago we purchased a block of land, which is worth around $70,000 today (purchased for $72,000 around 5 years ago). That land has been paid for and we are now looking at building a house on that land, which we will then rent out.
Our family home has a mortgage of around $130,000 left on it.


Question 1 -
Can we move $70,000 (or any amount) of our mortgage off our family home and onto the block of land?

Situation 2 details -
When we were married we were given 45 acres of rural land (recently valued for a bank loan at $50,000) as a wedding present. We are considering building a house on this land and renting it out.

Questions 2 (only relevant if the answer to question 1 was yes) -
Can we move $50,000 (or any amount) of our mortgage off our family home and onto this block of land?

Thanks,

Chris
 
Hi Chris,

Stricktly speaking, when assessing the tax deductibility of interest payments on investments, the tax departement would "follow" the money back to it's original source. Seeing that the loan was for a Principal Place of Residence, moving the loan around would only chew up your hard earned dollars in bank fees and legal costs if you were to be audited and if this was to occur say 3 years after you claiming, would result in a nasty surprise.

With you blocks of land, are you limited to building just one house? My thinking is that, without going over the top, build as many humble houses/villas/townhouses on your land as possible and use the positive income to pay off the loan on your own home.

Glenn
 
Hiya

Glenn is pretty much right in terms of the usage of the funds determining the deductability of the interest.

You could consider selling your property(ies) into a trust structure and thereby receive some tax benefit there (maybe ?)

Ta

Rolf
 
Thankyou both for taking the time to reply. You've confirmed what I already suspected, but I was hoping for a twist that allows that kind of thing (perhaps the trust is that twist). I'll investigate both options.

Thanks again,

Chris
 
Chris,

You may wish to explore disposing of both land allotments to a family trust for full market value. The trust may borrow funds for the acquisition allowing the possibility to significantly reduce your home loan and claim a tax deduction on borrowings made by the trust.

An impediment to this strategy can be the stamp duty and CGT realised, although in your case I do note that there would be no gain on the $70k property. The same would be true of the rural acerage where the market value at the time it was gifted is not dissimilar to its current market value.

The effectiveness of the strategy will of course depend on the ability to generate sufficient income through the trust, whether by postive gearing property and/or other income injections (eg. income distributions from a business).

Food for thought...
 
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