Selling to set up Debt Recycling

I'm looking at kicking off debt recycling and have split my home loan in two ready for this (note: not planning to leverage, only recycle). I started investing in ETFs earlier this year using savings.

Should I sell what I currently have invested and repay my non-deductible, and then draw down on my deductible loan the equivalent amount to what I have invested (i.e. effectively replacing what I had invested)? It would trigger a small capital loss, however I can use this loss to offset gains from dividends later this year.

Good idea? Bad idea? Considerations?

 

It could be but what are you wanting to sell?

 

Sorry that wasn't clear - I have been purchasing Vanguard ETFs using savings. Should I sell these and repurchase again using funds from the deductible loan now that it is set up?

The ETFs are worth ~$130k, capital loss on the ETFs would be ~$2.5k.

Home loan structure is:
PPOR value: ~$1.2m
Split 1: $500k (non-deductible, live-in P&I variable)
Split 2: $300k (deductible, investment IO variable)

 

How exactly would the capital loss offset the dividend payments later this year?
One is capital other is income

 

DRP. Although I’d probably turn this off when recycling.

 

I don't answer should i questions, but you could.
You would need to watch out for Part IVA being applied though - a wash sale. Get some tax advice.

 

Sounds like a reasonable thing to do to me.

Regards,

Jason

 

Thanks all for your input and guidance. Keen to set it up to make it deductible but will take your suggestion Terry on getting some advice on being called out for washing, which by doing a quick read it appears it could easily be perceived that way. Hard one to justify it seems.