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but in this case the purpose of my PPOR loan wasn't for a business, so wouldn't this imply that I can NOT get a tax benefit on the interest? (i.e. we're talking about redrawing on a personal loan to use a deposit for a IP)
Oh, just noted here that in this case my PPOR Loan is in both my/wife's name, hence would the negative gearing effect on interest for this portion have to spread 50% across myself and my wife (who's on a lower marginal tax rate, hence less gearing effect)?eg say you have $150k equity in your PPOR. Take out a LOC for max of $150K then use this for a deposit to purchase an IP for say $400k.
Hi mixedup,
It's all to do with your comfort levels. We have to get out of our comfort zones in order to achieve great success.
As I heard Ed Chan state on more than one occasion... don't buy real estate... buy time. Get the biggest buffer in the form of a line of credit against your home. It doesn't cost you anything if you don't use it. Then use the line of credit for a 20% deposit + costs + buffer.
You decide when to purchase another property when your buffer is big enough to cover the deposit, costs and shortfall for as many months/years that you feel comfortable... and everyone's different.
We recently did this for our third property... and our buffer was reduced to $5k! We really pushed ourselves this time, but our incomes can help cover the shortfall and increase the buffer, as well as property working its capital gains magic as well.
Good luck!
Oh, and just buy PIA already. It's a great tool.
Thanks MJ, thats a neat way of considering the question when to buy again.
So re the negative gearing aspect I guess you're suggesting not to worry about this for this deposit portion? Let me try to be more clear with where I'm still not clear. So...
Assuming: If you borrow the 20% deposit from your PPOR loan (in wife/husbands name) then the interest on this amount can still obtain the tax benefit as its being used for your IP (based on responses earlier in the thread.
Question 1: If the IP is in husbands name (i.e. has higher marginal tax rate) does the interest incurred from the PPOR loan have to be (a) spread across the husbands tax return & wife's tax return 50:50, or (b) can it be 100% put down on the husband's tax return on the basis that it is for the IP which is in the husbands name?
Question 2: If the answer to Q1 is (a), then is there another way to maximise the negative gearing effect?
Thanks
Thanks MJ, thats a neat way of considering the question when to buy again.
Question 1: If the IP is in husbands name (i.e. has higher marginal tax rate) does the interest incurred from the PPOR loan have to be (a) spread across the husbands tax return & wife's tax return 50:50, or (b) can it be 100% put down on the husband's tax return on the basis that it is for the IP which is in the husbands name?
Question 2: If the answer to Q1 is (a), then is there another way to maximise the negative gearing effect?
For our situation, the loan for the deposit was in both of our names (and we jointly claim 50% of the costs each), but we used a hybrid discretionary trust to purchase IP #3, so at tax time my accountant and I decide who gets the negative gearing benefits.
Rang the ATO direct and confirmed that I can both (a) claim an interest benefit and (b) I can put it all against my name (not wife's) on the basis that the IP title is in my name only. Good news.Question 2: If the answer to Q1 is (a), then is there another way to maximise the negative gearing effect? Thanks