Tax Deductible Debt Question

Discussion in 'Accounting & Tax' started by Gregg, 28th Jan, 2020.

Join Australia's most dynamic and respected property investment community
Tags:
  1. Gregg

    Gregg Member

    Joined:
    9th Jan, 2020
    Posts:
    15
    Location:
    Perth
    Hi all,

    Very new to it all but I was wondering a few things. I currently have a P&I loan on an IP, where the loan is worth 390k and property is valued at 550k, and I have 50k of equity able to be taken out.

    If I refinance this loan to 440k and use that 50k equity to purchase another property will this cause issues with my original P&I loan when it comes to tax deductions on the interest?

    What is the best way to go about this if I want to ensure my tax is deductible from the first IP loan.

    I'm very unfamiliar to tax and especially it's implications regarding this topic, but I'm keen to learn more, so any help is appreciated!


    Regards,
    Gregg
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    30,882
    Location:
    Australia wide
    I have written hundreds of tips on this sort of thing here.

    Just split the loan. Borrow $50k or whatever amount as a separate loan.
     
  3. Ross Forrester

    Ross Forrester Well-Known Member

    Joined:
    30th Oct, 2016
    Posts:
    1,807
    Location:
    Perth, Western Australia
    Best not to get the loans mixed. You might sell one later on or move into one of the properties.

    Consider offset accounts as well.
     
  4. Gregg

    Gregg Member

    Joined:
    9th Jan, 2020
    Posts:
    15
    Location:
    Perth
    Thanks Terry, I've read a lot of your material already.

    I'm still getting my head around split loans, am I right that it'd look like the following:

    Loan A (Existing Loan) = 390k

    *Split Loan by Obtaining Loan B*

    Loan B = 50k

    Then I use Loan B for and property purchase?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    30,882
    Location:
    Australia wide
    Yes - as long as you have enough equity.
     
  6. Gregg

    Gregg Member

    Joined:
    9th Jan, 2020
    Posts:
    15
    Location:
    Perth
    Thanks again Terry.

    This may take longer to explain but, if I used Loan B (50k) towards a owner occupied home loan so I can claim my FHOG. Will Loan B be tax deductible in 6 months after I move out and rent out the place? or does it get complicated in that scenario?
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    30,882
    Location:
    Australia wide
    Deductibility depends on use. If you borrow to acquire a property and later rent out that property the interest will be deductible as it was used for an income producing purpose - deductible from the date the property is rented or available for rent, depending on the circumstances.
     
  8. Mark F

    Mark F Well-Known Member

    Joined:
    29th Jan, 2020
    Posts:
    584
    Location:
    Canberra
    I see a side issue which will most probably derail your plans. You already own an investment property and so are very unlikely to be eligible for a FHOG.
     
    Terry_w likes this.
  9. Gregg

    Gregg Member

    Joined:
    9th Jan, 2020
    Posts:
    15
    Location:
    Perth
    I thought that as well but I've spoken to my mortgage broker and based of the criteria, I'm still eligible for the FHOG.
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    30,882
    Location:
    Australia wide
    Best to check this with a lawyer.
     
    Gregg likes this.
  11. Gregg

    Gregg Member

    Joined:
    9th Jan, 2020
    Posts:
    15
    Location:
    Perth
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    30,882
    Location:
    Australia wide
    What state will the property be in?
     
  13. Gregg

    Gregg Member

    Joined:
    9th Jan, 2020
    Posts:
    15
    Location:
    Perth
    Western Australia!
     
  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    30,882
    Location:
    Australia wide
  15. Gregg

    Gregg Member

    Joined:
    9th Jan, 2020
    Posts:
    15
    Location:
    Perth
    Thanks Terry, this helps. Appreciate it!
     
    Terry_w likes this.