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Advice on IP for Tax benefit

Discussion in 'Property Finance' started by Vanvir, 27th Jul, 2015.

  1. Vanvir

    Vanvir New Member

    Joined:
    27th Jul, 2015
    Posts:
    4
    Location:
    Sydney
    Hi guys,

    I need your advice on what is the best option for us.Combined salary-110k,Currently we almost paid of our PPOR - home loan 500k,offset 480k, only 20k loan left.We are planning to buy IP house with 1,3M - it's in Sydney so already expensive,IP is 2 storey house with 2 kitchen n bathroom so it can be divided to 2 living areas.We prefer use PM to look after it


    Now we have been thinking 2 options:
    1.Stay in PPOR,take 200k from PPOR offset to IP,rent the IP,get negative tax gear from IP-result we may not afford the loan repayment, not enough income to pay off,unless we choose interest only home loan and we can only rent IP as the whole house,not legal to rent it as 2 unit

    2.Rent PPOR,take 200k from PPOR offset to IP,move to IP,rent 2nd level-result enough to pay repayment,question can I claim negative tax gear on PPOR since the PPOR loan is increased to 200K and I rent this place out?I hope I can get benefit from both properties even so only half from IP.

    Would love to hear your thought on which option is better?Thank you
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,975
    Location:
    Sydney
    1. Would cost you approx $10,000 per year in lost tax deductions
    2. Also would be losing tax deductions. Could claim part of costs where part of property is income producing

    Why not
    3. Keep cash in offset and borrow deposit for the new property as well as the remainder - 105%. If you will live in the new one move offset cash to the new offset on this property.
     
  3. Vanvir

    Vanvir New Member

    Joined:
    27th Jul, 2015
    Posts:
    4
    Location:
    Sydney
    Thanks a lot Terry, with option 3, do you mean by keeping 200k in PPOR and stay in PPOR and get a new loan with offset account for IP? Does it mean I will need to pay LMI? (I try to avoid LMI with 200k deposit paid to IP)

    If I go this way, I don't think I can get the loan (have been asking around and max only $1,3M with 200K deposit, if not, I don't get home loan),also I still need the money for pay stamp duty, bank,other fee as well :(
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,975
    Location:
    Sydney
    No need for an offset on the IP usually, but in this case you would need one because of your large amounts of cash. You would simply borrow 25% against the current main residence, keep your cash in the offset, and buy the new property. no LMI

    If because of servicing your cannot do this you need to conisder whether to use some of your cash or pay down and reborrow. This will depend on whether you intend to live in the new property and if so short or long term