Draw equity from current PPOR for investment property

Discussion in 'Accounting & Tax' started by Mlee17, 3rd Apr, 2019.

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  1. Mlee17

    Mlee17 Member

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    Hi guys

    Not too sure whether this question has been asked before and if it has please direct me to the relevant thread.

    I have a PPOR which I will like to draw equity from to buy an IP. I still owe a decent amount to the bank so the extra amount i can withdraw from equity won't be too much.

    My question is, am I better paying down as much as I can in my current loan for PPOR and then borrow the difference with what i am owing to the bank valuation of the property. And if so, am I now able to claim deductions like a normal investment property for the "new loan" i just took?

    Much appreciated guys.
     
  2. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    What is your intention with the current PPOR, will you live there long term, sell it, or potentially rent it out in the future?

    If you set things up properly you can.
     
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Its been asked endlessly. Look for threads about interest deductibility, blended loans.
    The new loan draw down will be deductible v's the new IP, perhaps.

    You dont mention it but you sound like your are describing debt recycling by paying down the home and drawing new money. BUT, make sure its a loan split as there will be two different purpsoes and it will limit deductions in the future.
     
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  4. Mlee17

    Mlee17 Member

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    So the intention is to continue living in the PPOR but draw equity for an IP. To make things simple, you can assume that i fully paid off my PPOR and my intention now is to get my PPOR value and whatever the bank lends me will be used for IP. So just wondering whether will that be tax deductible or not.
     
  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    How you use the funds will determine if its deductible or not. If you buy a IP after 1 Jan 2020 under the ALP policy it would be deductible once acquired but limited to the extent of the taxpayer having no neg gearing. ie partial deduction maybe, full deduction maybe.
     
  6. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    That would be the classic case where a debt recycling strategy would work.
     
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  7. Mlee17

    Mlee17 Member

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    i am assuming from your response that yes it will be tax deductible simon?
     
  8. Mlee17

    Mlee17 Member

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    yes. drawing the new money for the sole purpose of buying an IP. Why does it need to be split if I have pay off my PPOR and the equity drawing will be for IP?
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    I think people get themselves into a state of confusion by using vague language.
    You can't withdraw equity, or draw equity.

    You can only borrow money. If you think of it like this things fall into place
     
  10. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    I'm still trying to work out if the proposed law to stop interest deductions under Steele's ever got up. If the ALP win it could come back before 30 June. If so it could impact any deduction too
     
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