What can be paid by the loan? Vs Out of Pocket?

[Guzz226]

Our investment property will be funded by:
- Seperate loan against our PPOR for deposit
- New Loan (new lender) for the IP

In terms of tax implications for interest deductions, can LMI, Stamp Duty etc also come out of one (or the other) of these loans?

ie the total loan draw down would be more than the purchase price - ie price+stamps+LMI

Can the loan interest of all of this be claimed? Or just the purchase price in which case keep the stamps and LMI out of it?

It is specifically the ongoing loan interest I am not sure about - I am aware of the claiming over time of the upfront costs.

 

[Aaron_C]

Usually LMI can be capitalised on top of the loan, whereas stamp duty and other fees are paid out from the loan proceeds themselves.

 

[Colin Rice]

Stamp duty is non tax deductible according to Mr ATO;

http://www.ato.gov.au/General/Prope...-claiming-borrowing-expenses/?default=&page=3

Interest on the loan is tax deductible and if structured correctly you can pay ongoing costs associated with the IP.

Get the clearance in writing from your Accountant before proceeding further.

 

[Aaron_C]

Interest on the loan is tax deductible and if structured correctly you can pay ongoing costs associated with the IP.

Get the clearance in writing from your Accountant before proceeding further.

I don't think you would need accountant advice to be sure that borrowing to pay for an investment expense is tax deductible....

 

[Paul@PFI]

FMS might be confusing the issue by discussing tax deducibility of stamp duty. That wasnt your question.

Interest is deductible to the extent that the loan proceeds are used to fund the acquisition. You CAN include duty, deposit, settlement and other costs in the loan amount no problem. Provided the lender has adequate security, 100% or higher gearing is acceptable to the ATO.

For some IP owners a strategy to keep their loan balance high can work. You draw on the loan for annual rental expenses such as strata, council etc so the borrowing is maintained. That is also OK provided the proceeds are for outgoings, improvements etc. Drawing on loan for private issues will taint the loan and should never occur. In a practical sense though this loan building strategy doesnt build equity well when compared to smashng the loan and paying it off quickly.

 

[Guzz226]

Thanks for all the responses

 

[Colin Rice]

Apologies for any confusion caused. Need to give up this late night posting but its the only time I can get on here.

 

[twhurl]

We have paid our IP deposit using existing PPOR drawdown.
On IP settlement can we pay full purchase cost of IP and costs from IP loan and just request our deposit back from estate agent trust acct?

Thanks