Hi All,
I think I've got myself in a bit of a twist on how to maintain deductibility on a LOC while moving between asset classes. A classic case of acting before thinking it through!!
Situation is (round numbers):
Existing IP - Purchase Price $1m
80% Lend with 3 IO splits ($700k) and 1 LOC ($100k) - all 4 facilities totally drawn down at settlement for maximum deductions. No PPOR so offset account against one of the IO loans holding cash, rent, salary, etc - approx 100k. With cash in the offset, after all depn, property is +ve about $7k per year.
I'm not looking to buy another IP...but I would like to move the cash from the offset into shares to bring the property to neutral(ish) to manage the tax liability and keep deductibility.
There is a chance the IP will become a PPOR in the future so the initial $800k would no longer be deductible. I understand I can recycle the debt by paying into the splits and redrawing for further investments - shares, IP expenses, IP deposits, etc.
My Question:
Can I partially pay off the LOC and then draw for the shares, eg 30k? I'm thinking not, it would make the $100k LOC split purpose and ruin the deductibility if I did move in to the house.
If (hypothetically ) I've already paid $30k into the LOC and then drawn $10k for a share purchase - what is the best way to rectify?
1. Finish purchasing the remaining $20k of shares? --- No change to mixed purpose, but fix cashflow.
2. Move cash from the offset to LOC to bring the balance to $0 and start again? --- Lose deductibility of the initial $10k.
3. Leave the LOC at $80K and start paying it down slowly, if I reach $0 before the IP turns to PPOR, I'm fine? --- No change to cashflow, but fix deductibility.
I think option 2 is probably the most flexible, but wanted to check with the wise people of SS!
I may have to wear the lost deductions on the $10k. Unless I sell and re-buy the shares once the LOC is at $0 (will have to look at price movements and brokerage vs interest rate to see if that is worth it).
Like I said - A classic example of looking at the shares and acting too quickly without thinking it all through. Hope this may provide others with a warning if they are impatient enough to do the same!
I think I've got myself in a bit of a twist on how to maintain deductibility on a LOC while moving between asset classes. A classic case of acting before thinking it through!!
Situation is (round numbers):
Existing IP - Purchase Price $1m
80% Lend with 3 IO splits ($700k) and 1 LOC ($100k) - all 4 facilities totally drawn down at settlement for maximum deductions. No PPOR so offset account against one of the IO loans holding cash, rent, salary, etc - approx 100k. With cash in the offset, after all depn, property is +ve about $7k per year.
I'm not looking to buy another IP...but I would like to move the cash from the offset into shares to bring the property to neutral(ish) to manage the tax liability and keep deductibility.
There is a chance the IP will become a PPOR in the future so the initial $800k would no longer be deductible. I understand I can recycle the debt by paying into the splits and redrawing for further investments - shares, IP expenses, IP deposits, etc.
My Question:
Can I partially pay off the LOC and then draw for the shares, eg 30k? I'm thinking not, it would make the $100k LOC split purpose and ruin the deductibility if I did move in to the house.
If (hypothetically ) I've already paid $30k into the LOC and then drawn $10k for a share purchase - what is the best way to rectify?
1. Finish purchasing the remaining $20k of shares? --- No change to mixed purpose, but fix cashflow.
2. Move cash from the offset to LOC to bring the balance to $0 and start again? --- Lose deductibility of the initial $10k.
3. Leave the LOC at $80K and start paying it down slowly, if I reach $0 before the IP turns to PPOR, I'm fine? --- No change to cashflow, but fix deductibility.
I think option 2 is probably the most flexible, but wanted to check with the wise people of SS!
I may have to wear the lost deductions on the $10k. Unless I sell and re-buy the shares once the LOC is at $0 (will have to look at price movements and brokerage vs interest rate to see if that is worth it).
Like I said - A classic example of looking at the shares and acting too quickly without thinking it all through. Hope this may provide others with a warning if they are impatient enough to do the same!