Renting out PPOR with an Owner Occupied IO Loan

Hi everyone,

Current Situation: My PPOR is refinanced 2 years ago with a new bank - has a Owner Occupied Interest-Only loan ($500,000) with an offset account.

--Loan Account: I have transferred up to about $100,000 savings from another bank of into it, No outgoing transactions.
--Offset Account: Had $50,000 originally from re-finance due to capital growth, since then there are personal expenses and some savings going in.

Future Consideration: I'm looking to rent out my PPOR in the near future (make it an IP) and unfortunately I wasn't aware of the complications for tax deduction.

My Questions Are:
1: How severe is my loan mixing situation, is it easy to un-mix or explain ATO if I rent out and get an Audit?
2: Does it solve the problem if I: A - Refinance with another bank before renting out? B - pay off PPOR completely and get a loan again to 'start fresh' before renting out?
3: What can/should I do in this situation if I'm going to rent out my PPOR soon and still want tax-deduction?

Thanks so much in advance!

 

You have permanently reduced deductions for interest and borrowing expenses since the $500K loan has been reduced to $400K. I see no loan mixing issue. You cant fix it. Once repaid it reduces the deductible.

If you pay off the loan and get a new loan it would be 100% non-deductible since the new loan proceeds are NOT to acquire the property.

The rate may change if the property is no longer owner occupied.

 

1.
Tax Tip 44: How to Un-Mix a Mixed Loan Tax Tip 44: How to Un-Mix a Mixed Loan
2. no because none of the interest would then be deductible
3. unmix it or apportion the interest

 

I think this is the part that caused mixing.

 

Thanks Paul! In that logic to your first paragraph: Since I reduced my loan account from $500K to $400K and loses deduction on $100K, can I put that $100K into an IP so I can claim the deduction back on $500K loan amount?

To your second paragraph: My current loan is already a re-finance from a previous bank loan 2 years ago (same loan type), does that mean my current loan is already 100% non-deductible?

Thanks again.

 

Thanks Terry!
Similar to my response to Paul@PFI, as my current loan is already a refinance, so my current IO loan is already non-deductible?

Much appreciated.

 

1. If you borrow to invest the interest may be deductible.

2. no

 

IDK...Personal advice time. Two line posts arent a form of advice.