How to structure loan - needs help

Firstly I am new to the forum. Needs advise from experienced property investors on this forum.
I recently bought a second property. I am going to rent this out for a year to claim the tax benefits and stamp duty (In ACT it's claimable in first year). After a year this will be my PPOR.
My current PPOR is under 50%. After a year once I will move to second property I want to convert first into IP.

Now question is can I refinance before I settle on second property. Increase the first property loan to 80% and move the equity into second property loan. I want to do this to get max tax benefits once first property will be IP after a year.

If I won't increase the loan and convert the current PPOR into IP after a year then it will be positive geared or even out.

Please suggest me how I can structure my loan so I can get max benefit without violating the ATO tax rules.

 

Hopefully the first loan used an offset account and you will set up the second loan with an offset account. Do not pay off your debts - just deposit into the offset accounts that has the main residence at the time.

The asset used to finance the house does not affect the tax deductibility.

 

Hope you have received some tax advice.

Stamp duty may be deductible in the ACT, but only where the property is an investment and you intend to keep it that way. You will probably only be able to claim a portion of the stamp duty:
Tax Tip 136: Claiming Stamp Duty on Properties located in the ACT (Part 1) https://propertychat.com.au/communi...n-properties-located-in-the-act-part-1.11591/
Tax Tip 137: Claiming Stamp Duty on Properties located in the ACT (Part 2) https://propertychat.com.au/communi...n-properties-located-in-the-act-part-2.11667/

And the interest on the PPOR - only the interest on the loan used to purchase and/or improve the property could be deductible, once it is available for rent.

So increasing the loan to 80% won't increase deductions.
Tax Tip 77: Redrawing Extra Repayments to Increase Deductions? https://propertychat.com.au/communi...extra-repayments-to-increase-deductions.5760/

 

See also
Strategy: 11 Strategies for when you move out of the PPOR and keep it https://propertychat.com.au/communi...n-you-move-out-of-the-ppor-and-keep-it.11311/

 

You'll only be able to claim the existing debt (the 50% still owing).

Setting up the initial loan as interest only with an offset would have prevented this - have a read Pass Go Home Loans - Interest Only with offset account structure

Cheers

Jamie

 

The existing balance/s used to acquire each property retain their tax position even when refinanced, blended or split. You cant increase loan interest deductions on a property by borrowing more money unless the borrowing is to improve that property or to pay property outgoings...even then a tax concern can become a problem and so advice should be obtained before doing that.

If you borrow extra $ from the equity on property A and use it to pay a deposit on new IP B then the interest on the new loan is deductible against B, not A. Its better to split such a loan from the original loan to buy A. This is often described as "blended" so that the interest on A and B are not mixed. (Since A is non-deductible and B is deductible)

To avoid P&I eroding the tax deduction on A (your home) over time, many choose to use an offset so that extra repayments sit in the offset. What they do is make A a interest only loan. But they repay the loan like it was principal and interest with the extra repayments siting in the offset.

 

Thanks for the reply everyone.

Don't know if it's true, I was reading somewhere that if the equity withdrewn from the PPOR to buy a IP that generate income then that portion is tax claimable.

In my case if I withdraw equity from PPOR (current 50%) to 80% and use that money to fund the second property which will be IP for a year or so. Then should I be able to able to get the tax deduction on 80%?

 

That's right.

However - you're moving into your IP in one year. So you'll only be able to claim that interest (on the loan being used to purchase the IP) for one year.

Sounds like you need an awesome accountant - @Paul@PFI above fits that description.

You really don't want to stuff this up.

Cheers

Jamie

 

You could claim the interest on a loan used to buy a property that is rented out.

So you should split the loan, segregating the extra borrowings which will be used for the second property. Once this property becomes an investment the interest should be deductible.

See
https://propertychat.com.au/community/threads/terryws-ideal-loan-structure.6016/

 

After reading Jamie's post I understand you will be renting the second property for a year and then moving into it

IN that case the interest will only be deductible on the extra borrowings until you move in.