Joint Names - Equity Loan

Hi all,

Hoping someone might be able to clarify the scenario below:

Mr. X and Mrs. Y own a PPOR together (joint ownership) and wish to draw equity on this property to fund the 20% deposit for an IP. Mrs. Y is likely to have her income reduced after having a child several years from now.

The investment property will be cash-flow positive after tax, and is expected to be positively geared after a few years. For this reason the IP is purchased in Mrs. Y's name.

Will interest incurred on the equity loan against the PPOR for the deposit be deducted against both incomes, or just Mrs. Y?

Thanks

 

Just Y. The other person X has no income associated with the borrowings.

 

The deduction is based upon the OWNERSHIP of the newly acquired property and the ownership of the LOAN SECURITY is ignored. Its very important that the new loan and the old loan are blended...This is a example of a blended loan problem. Best practice is to ensure the old loan and the new loan are separate accounts.

In the example given if Mrs Y acquired the new property she would likely have:
- 100% of rental income and 100% of rental deductions for the new property
- Deduction for the deposit loan secured against home and also
- deduction for interest on say the other 80% loan secured by new IP.

Mr X is just a co-borrower. Terry has some good articles on this co-borrower issue and why it may be good / bad.