Is this Legal?

All,
I have the following scenario that i wanted your advice on

1. PPOR bought for say 500K
2. Investment Property Bought for 250K

Current Value - PPOR say 1,000,000
Current Value - Investment Property say 500K

Need to buy a 1.2 Mill worth new house to live in


Can one draw equity out of their current to properties based on current market value, pay that as deposit to buy new house to live in with the aim to reduce bad debt.
Get a loan for the remain part of the new house.

Can one claim interest on the equity released from the old houses as deductions during tax return time as they are now deemed as investment properties. to reduce tax liability

 

I'd say no as the purpose of the equity release is not for investment.

 

Yes you can do that but you cannot claim the extra interest as use determines deductibility not security

 

thanks guys. Looks like i will have to think of other options

 

One option would be to sell your current PPOR, use the cash you receive from the sale as a deposit on a new PPOR and then leverage against the equity in the new PPOR to purchase a new investment property. This would maximise deductible debt as the investment property could be fully debt funded.

 

It does not matter what asset the funding is secured against, or what mix etc. What are the funds going to be used for. In this case a PPR, so no not deductible.

Make sure you speak to your broker so to not contaminate the IP loan.

 

Tax Tip 22: Security for a loan does not determine Deductibility of Interest

 

thanks guys.

 

It's only illegal if you get caught.