Sell vs rent a half paid off PPOR

Hi everyone,

Reading through the old Somersoft forums and this new one has really opened my eyes to the intricacies of buying houses. I realise now that what we’ve done with our first PPOR was not the best way to do it, and would really appreciate any help the forum members could provide!

Basically:

1. We have a 2-bed apartment that is worth approximately $370k in the inner west of Melbourne. It would rent for approximately $310 per week. This is split 50/50 in my fiancés and my name.

2. We’ve just moved out of this into a rental, and are unsure of whether to sell it or rent the apartment out. My fiancé and I have just had a baby so she is off work for quite a while. I earn an above average salary and pay a fair bit of tax.

3. The main reason I am unsure of sell vs rent is the tax implications. We have a split loan on the apartment, with a total of $160K still owing. We have approximately 100K in an offset account against this. The split loans are in both our names, I just split it into a fixed and variable and switch the offset between them depending on which is higher interest.

Obviously if we sell we can wipe the slate clean and start again with a better debt strategy. However is there a way we can convert this debt into something more tax friendly for us? My understanding is that if we were to rent the apartment out we could only claim the interest on the $160K still owing, which would mean losing out on a lot of potential tax benefits. Reading over the old forum I saw plenty of interesting strategies such as wives selling to the husband to refresh the loan (with no stamp duty in Victoria) or setting up a trust.

I’d appreciate any information you could give me. Obviously I need to chat to a financial planner / tax expert but would really like to be as informed as possible before doing that.

Thanks in advance

Ross

 

No need to chat to a planner - a lawyer and/or tax agent is the one to speak to.

The interest on the $160k will be deductible only if this loan relates entirely to the purchase of the property. If you have ever redrawn from the loan it won't all relate to the property.

If you are in a rental you won't be paying non deductible interest. So if you did sell what would you do with the money?

 

Thanks for the response Terry,

If we do sell it would be either to purchase a bigger PPOR, or more likely an IP with a small deposit and the remainder sitting in an offset to purchase again. We'll then continue to rent where we like to live and purchase elsewhere.

Not being able to deduct the interest on the original unit seems like it is a lot of money being missed out on, so any insights into what we could do to get around this would be greatly appreciated.

Thanks

Ross

 

See my legal and tax tips - especially the ones about spousal transfers and buying in single names.

In VIC there is a duty exemption for transfer between spouses.