Strategy: Turning PPOR into Investment Property

Have a question about the most tax effective way to do the following; or if it is even tax effective.

1)
Refinance current PPOR (Property #1)
- Value 500k - New Loan Balance 400k
- Create/Save 285k Equity / Offset

2)
Buy Investment Property 1,100,000 (Property #2)
- Use 285K Equity in PPOR (Property 1)

3) Claim Tax Deduction on
- 285K Interest on PPOR (Property 1)
- Interest on Loan Balance (Property 2)

Do this over 3-5years

4) Move from Property 1 into Property 2
- 285k part of Loan on Property 1 loses tax deducatability.
- Property 2 loses tax deducatability.
- Start claiming tax deduction on 115k portion of loan on Property 1.


Questions
Is there a better way to do this?
Or a specific way i should set up which loan facilities are interest or principal and interest?
Im worried about have lots of interest to claim tax deductions on for 3-5 years, but then when I switch over I'll have property with 285k loan that is not deductible.
What is the next move when I move from property 1 to property 2?

Thanks for any advice.

JB

 

It depends on a lot. What are you trying to do?

You might be better off selling property 1 when you move into property 2.

Once you move into property 2, or even before, consider debt recycling into other investments.

 

Trying to reduce tax as much as possible for next 20 years, and buy family home. I am pretty flexible but this is the option ive come up with.

I want to keep Property 1 indefinitely. Would like to somehow get the whole loan to be tax deductible at some point, somehow though.

 

That won't be possible if you already own by other than by debt recycling the part of the loan that is not deductible.

 

I'm in a similar situation and trying to figure out the best structure/way.

Our current position:
PPOR value ~530k
PPOR loan amount 270k
75k in the offset

Looking to buy/build a new place at some point as we plan on expanding the family. We are not emotionally attached to our current PPOR, so we are happy to sell it if thats the best financial decison.

The options that I am aware of are:

Option 1) Sell the PPOR and use the profit to purchase the new house and have a lower loan amount. Then use the instant equity in the new house to purchase a new investment property, which will have the maximum loan amount on it. The interest on the new investment property is now fully tax-deductible.

Option 2) Similar to what @J.B said above. Buy an investment property now (which will eventually become the future PPOR). What I don't understand in J.B example is how the 285k would be tax-deductible AND the interest of property 2?

@Terry_w Any thoughts on my situation and what I am trying to achieve (moving into a bigger place but having as much loan be tax-deductible). Also, could you explain debt-recycling and how it could potentially be used in my situation? Huge thank you in advance!

 

have a read of all my strategy posts
Terryw's Structuring Strategies

especially this one:
Strategy: 11 Strategies for when you move out of the PPOR and keep it Strategy: 11 Strategies for when you move out of the PPOR and keep it

I am designing a short email series on debt recycling - watch my signature for when it goes live.

 

Thank you! I will definitely have a read through those links and look forward to the debt recycling series. Lastly, who is the best person to speak to, to discuss my position in more detail, and determine whats the best course of action for me? A mortgage broker? Tax adviser? Accountant?

 

a tax lawyer that is a broker?

Debt recycling involves tax advice and this can only be given by a registered tax agent or a lawyer. But also loan advice is needed and perhaps legal advice on structure and ownership issues - which only a lawyer can give.