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Buying out a partner - tax deductible debt

Discussion in 'Accounting & Tax' started by sydprop, 24th Nov, 2015.

  1. sydprop

    sydprop Active Member

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    So, Say I buy out my partner - currently owned 50/50:

    Original purchase price: 400k
    Current mortgage: 250k
    Current value: 800k

    Value of the share being sold: $400k

    My new tax deductible debt attributed to the investment is:

    1. 50% x 250k (Original mortgage)
    2. 400k (New mortgage for buy out costs)

    Total = 650k

    Am I on the right track?

    Note: CGT, Stamp duty and costs are ok.
     
  2. York

    York Finance Broker Business Member

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    50% × 250k =125k existing debt.
    +400k new debt
    =525k total debt (excluding costs)
     
    Terry_w likes this.
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    York is right.

    Don't forget stamp duty and conveyancing costs.
     
    York likes this.
  4. D.T.

    D.T. Adelaide Property Manager Business Member

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    Even if it's an IP, the 400k portion might not be tax deductible depending on how you structure it?
     
  5. sydprop

    sydprop Active Member

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    Forgiving my poor math - thanks.

    In terms of structuring, it will be a straightforward market rate purchase - DT - what should I look out for?

     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    CGT Market value substitution rule applies if its not transferred at $800K total value (ie $400K)
    OSR will require a valuation for duty assessment as its not arms length
    Repay 50% of the original loan as it would no longer be deductible.
    In NSW this transfer is dutiable unlike a spouse transfer that results in 50/50 while occupied.
    Land tax impacts ?? Land Tax clearance certificate issues ??

    If its a transfer due to relationship breakdown there are concessions to discuss with lawyer (not conveyancer)
     
  7. D3xx

    D3xx Member

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    From a tax perspective, what is the value of the property? Is it an agreed value between parties, the market value, or the OSR assessed value?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Market value. See market substitution rule.
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Is it residential ? If not then GST could complicate it further. I have had many enquiries about spouse refinancing and then later they disclose its commercial. The inability to fund the GST can be a deal killer.