Hello all. I'm about to take out a homeloan with my partner for a property we secured at an auction last week. I currently already have ppor loan with 360K outstanding minus 50K in redraw (not offset). Initial home value: 500K, current value: 900K. Until last week I had 100K in redraw (so 260K debt) but I took out 50K to pay the 10% deposit of the new ppor with some of my partner's savings. I will rent out my current apartment after we move into the new home, and I am trying to figure out the best way to structure my loan(s) moving forward. My plan was to do a topup of about 100K towards the new loan so we have an LVR < 80% and avoid LMI. Question is what to do with the loan on the current property, where I currently still live: - change into a 460K investment loan with a higher interest rate than I currently have, paying off principal and interest, allowing me to deduct all interest on 460K of rental income. Is this the way to go? - topup loan with 100K. Can someone tell me if I can deduct interest on 260K, 360K or 460K in this case? I am well aware of having to meet a tax accountant. I have arranged an appointment with a tax accountant end of next week but unfortunately have a settlement date deadline looming so need to make a loan structure decision for my bank early next week. I want to stay clear of gray areas and if I can optimise the use of rental income by minimising tax that would be ideal. Any advice tips or help would be greatly appreciated!
The bad news is it sounds like you may have ended up with a mixed purpose loan on the future IP. If you have been using redraw your accountant can calculate exactly what % of the interest can be claimed as a deduction. The overarching thing to keep in mind is that it is the use of any borrowed money, not the security the determines if you can claim a tax deduction (redraw can be considered a new loan). From the sounds of things the maximum you will be able to claim a deduction on will be the $260k. This will depend on what has happened with your redraw previously. Have a chat to your accountant and they can give you a more definitive answer. You may want to consider a spousal transfer. Here are a couple of threads that may help: Tax Tip 100: Transfers between Spouses and CGT Tax Tip 68: Transfers Between Spouses and Stamp Duty in NSW
Yes hate to say i think you have a few problems already going forward. Spousal Transfer or sale to a UT is worth considering dependent on your marginal Tax rate and the number of years you intend to retain the existing PPOR. Unfortunately you have already have a mixed purpose loan so time is now of the essence to avoid the entire interest being contaminated.
First thing to do is to unmix that loan asap ESP if it is pi. I think I have written a tax tip on how to do this.
Thanks for all your responses! So depending on the interest rate increase after refinancing the loan to a investment loan that could be the best way forward? At least that would clean the slate and make it transparent for tax deductions.
