We are planning to buy another house to live in and turn our home (which is paid off} into an investment property.
How can this be done?
How can this be done?
Turning ppor into ip?
- Thread starter ronnieandkylie
- Start date
Firstly, well done for paying off you home
If it is paid off, then you cannot claim any interest as a tax deduction. It is therefore likely to be positively geared and you will have to pay tax on the income. It is important to structure your loans correctly by paying interest only and using offset accounts. It would be a good idea for you to hang around here and do a lot of reading. It would also pay to speak to a good mortgage broker to get some specific advice for your situation.
If it is paid off, then you cannot claim any interest as a tax deduction. It is therefore likely to be positively geared and you will have to pay tax on the income. It is important to structure your loans correctly by paying interest only and using offset accounts. It would be a good idea for you to hang around here and do a lot of reading. It would also pay to speak to a good mortgage broker to get some specific advice for your situation.
Firstly, well done for paying off you home
If it is paid off, then you cannot claim any interest as a tax deduction. It is therefore likely to be positively geared and you will have to pay tax on the income. It is important to structure your loans correctly by paying interest only and using offset accounts. It would be a good idea for you to hang around here and do a lot of reading. It would also pay to speak to a good mortgage broker to get some specific advice for your situation.
and an accountant .....
Tim
Unfortunately the new house you buy will have a loan that is not tax deductible, while your current PPoR has no debt.
Ideally, you would want to have the PPoR with no debt and the IP with all the debt as it is tax deductible. It may be financially better to sell the current PPoR, use the funds to buy an new one, and it will have no, or little debt. Then use some of the equity towards an IP. The problem is there will be selling and buying costs which will chew up a bit of the equity you have, but ultimately you will have a tax deductible debt, which will probably offset the transaction costs.
You don't have to do anything at the moment to start, except start keeping records of all the expenses and income (rent) from when you advertise it for rent.
All the expenses are tax deductible against your earned income and the rent is added to this to give you a new taxable income.
This may mean you end up having a tax bill at the end of the year, but it won't be large, and it's a good problem to have; you're making money.
Make sure you get Landlords' Insurance (costs around $200 per year and is tax deductible), you won't need as much contents insurance, but you'll still need building insurance and public liability. Talk to an insurance broker for these things.
If the house was built after 1987, you will have depreciation from the bulding, fixtures and fittings which can be claimed as tax deductions. You will need to have a Depreciation Schedule prepared by a Quantity Surveyor, at a cost of around $500, but it will pay for itself in the first tax return.
You will need a good accountant versed in Property Investing.
Sorry, i dont think i made myself clear. Our ppor now that we are planning to move out of and turn into ip is paid off BUT the loan is not paid out.
So could we move house, new ppor, and move all our equity from old house, old loan onto new ppor loan to pay most of it off and have the new loan paying our old house that would be tax dedudtible as it is now an investment property?
I hope this makes sense.
So could we move house, new ppor, and move all our equity from old house, old loan onto new ppor loan to pay most of it off and have the new loan paying our old house that would be tax dedudtible as it is now an investment property?
I hope this makes sense.
Youl would have to "sell" your property to yourself, using a trust, company or some means. Then you'll have to look at capital gains tax and stamp duty
This would make the "purpose" of the new loan to buy an investment. Have you got a wizard accountant? Ask your accountant the best thing to do...If a home is to be used as a future IP (all homes could be), then I'd never pay it off, only using interest only loans, and pay all "principal payments" into an offset account.
Sorry this doesn't help you now, as it takes some planning/structuring in advance. To plan for the future with your new home though you can still do - I'd stick with interest-only and pay all the principal payments into an offset even to the point of "paying it off" i.e. 100% of value deposited and DO NOT close the loan account. Then shift the money to your next home after that
Dan
