Forum Replies Created
- AM2778 wrote:From my knowledge, Legal Expenses on Investment Property are not Tax Deductible.
Needs to be verified from a Tax Accountant.
AM2778
thanks for that. what costs fall under legal expenses. is it stamp suty, registration, is there anything else
Saurin
excellent thanks very much for ur reply. As you already have IP’s here. how is tenancy demand in these area, I am also concern about the locality in these area specially tenants, I m living in eastern suburbs throughout my life…..unemployment rate in Maribyrnong council area is 8.5%. somewhat worries me…….is it possible to get decent tenants in these area…… thanks……..
my budget is 340K max…..minimum i want 2br apartment or unit (not high rise buildings). I know it is hard to find but that is something i have to search for, possibly run down property, is there any real estate agencies in these area u recommend someone with decent knowledge of area or something and understand the investment potential
thanks
SaurinExcellent thanks Dan42.
Just To clarify
1) Loan B is also used to pay for my stamp duty for IP, so interest on Loan B can be clamied?
3) Depericiation makes sense now. assuming your scenario construction date for property i bought is 1990 so i have 20 yrs left to claim. and as per date it would 2.5%. 2.5% of what? the property value i paid to buy or is there some other value of 2.5%. which figure gets calculated here.thanks
SaurinTerryw wrote:say you borrow $95,000 on a $100,000 purchase. LMI would be payable and probably application fees (maybe) and some of registration fees etc. You may end up borrowing $98,000 with $3,000 being extra for the borrowing costs.
You would generally be able to claim the interest on the full $98,000.
But you could also claim the costs of the borrowing costs too. These are $3,000 divided over 5 years (or the term of the loan if shorter – eg you may sell or refinance). This would mean you have an extra $600 to claim each year for the first 5.Stamp duty is a capital cost so you cannot claim it against income, but when you sell and make a profit (or loss) it can be taken into account and claimed then. You could borrow the stamp duty and claim the interest on this too – generally. so in the above eg, you may borrow another $4,000 for stamp duty and have a total loan of $102,000 and the interest on this would be deductible. (you may be getting part of this loan from another LOC or using a second property as security).
Hi Terry,
thanks for your response. I gota be honest ,I am bit concerned with the word generally in your reply.I understand the difference between the capital costs and borrowing costs now. But I think there is still a grey line which costs falls in which category when it comes to tax.
Let's say I want to buy 300K IP in Victoria,
If I use LOC of (79.5K) which I primary be using to pay stamp duty and borrowing costs as well as deposit. I can't claim that in tax not even over the 5 years.
But If I borrow lets say 95% of 300K property and that extra i m borrowing for paying borrowing costs, LMI, can be claimed over 5 years in tax, am I correct.
If I have got it right, then there is no way I can claim the stamp duty in tax, only if I sell and CGT comes in play. So eventually we are looking that stamp duty will not be claimable in tax. but if I borrow more from lendes (if they allow) to cover my borrowing costs, LMI can be claimed over 5 years.
thanks
SaurinTerryw wrote:saurin_83 wrote:Hi there,From Loan B I would user 60K as Deposit and 19.5K as other capital costs (stamp duty, morgage registration etc..) If I understand your advise correctly I will be able to claim this in next 5 years in tax (does it mean 79.5/5 = 15.9K each year)? so it means if I earned 80K for next 5 years then only tax I would be on the amount of 80-15.9 K for next 5 years. is this corerct?
hi
This part is not correct. Capital costs are not claimable until the property is sold. But you can claim loan costs over 5 years. any interest incurred on borrowings to fund capital costs or loan costs or other costs would generally be deductible against income each year.
Hi Terry,
Can you please explain the difference between the Capital costs and Loan costs with examples if possible. also, Can you please explain with exampe if possible interst incurred on borrowing for capital costs?
I am still not sure if Stampy duty can be claimed in tax or not, if I borrow this amount as equity will that be claimable?. I think all the capital costs releated to IP will be borrowed as equity so that can be claimed in tax or not.
thanks
SaurinHi there,
thanks all for your response. I have some more queries about tax implications but before that I guess i need to structure my investment correctly.
I am planning to buy IP in Melbourne around 300K.
So far I understand I will arrange my Loan structure like this
Loan A : PPOR = 258K ( Existing morgage) linked to Offset 25K account (current market value of PPOR 375K)
Loan B : 79.5K (90% borrowed against equity)
Loan C: IP 240K (interest Only loan)From Loan B I would user 60K as Deposit and 19.5K as other capital costs (stamp duty, morgage registration etc..) If I understand your advise correctly I will be able to claim this in next 5 years in tax (does it mean 79.5/5 = 15.9K each year)? so it means if I earned 80K for next 5 years then only tax I would be on the amount of 80-15.9 K for next 5 years. is this corerct?
Also, As i have 25K in offset account which is linked to my PPOR morgage, I wanted to keep this 25K in offset as safe side like buffer for my IP? can this be used any other way to maxismise the benefits.
Also, 240K I have for IP property the interest on this is tax deductible. Please confirm if my understanding is right the way this will work is . My annual rental on IP is 20K and all outgoings including interest is 25K then I have negative cashflow of 5K a year. So in If I earn 80K that year the tax i would be paying on amount of 80-5K = 75K is that coerrect. I understadn that depericiation can be claimed as well over 40 years.
But I just want to confirm if I incure any loss through Property investment as well as capital costs using quity, it will be set against my annual income of that year, thus reducing my gross taxable income is that correct?
thanks
SaurinHi Terry,
I understand that arranging loans differently would avoid cross collateralising as well as tax managemnet. If bank allows me to set up different loan for 79.5K (which I am planning to user for capital costs stampduty, morgage registration etc…). Is stamp duty and all other capital costs including deposits still be tax dedcutible? I thought stamp duty can't be tax deductible?
thanks
SaurinHi Richard Taylor,
thanks for you response. I am single earner in house, my wife doesn't work. I earn 86K gross. 258K existing morgage. no credit card. Please tell me if any other infromation you require to give meexact guide.
Hi Terry, I think your approach to arrange a Loan is not to do Cross Collateral (am I right?). But I have heard from people who tried to follow my scenario that bank refused to give them seperate loan as 79.5K (Loan
all they were offered was to top up their existing morgage (Loan A). It seems like bank forces consumers to cross collateral. what is the best way to get away with that. what is the criteria that bank follows and refuse consumers to not to borrow equity as seperate loanthanks
Saurinmakes much sense. thanks a lot Terryw.
Quick question as I am earning 86K a year and single breadwinner in house no kids. how much I can borrow or bank let me borrow for Loan C. Do bank really allow borrow 90% of value (specially in today's condition where lending is tight). also I recently done valuation of my home and bank advsied it is worth 375K, but bank advised me that they will not provide any documentation around this, only verbally they can tell me what it is worth? is this right practise?
thanks
SaurinHi there,
thanks heaps for your response.
Response to Terryw and Lincoln Haugh, My current income is 86K gross. It was very interesting that if bank allows me to borrow 90% compare to 80% then my borrowing power will change dramatically.
Terryw you have advised "Make sure you get this equity as a separate loan, ie don't increase your current loan but get a separate one. Then use this 2nd loan as deposit for the new property and get a third loan for the remainder." I am bit confused about this.
Let's assume that bank will allow me to borrow 90%, so most I can borrow as equity as 79.5K. and I buy the investment property 300K
Please confirm that my Loan srtructure would be something like this.Existing home morgage: 258K
Equity: 79.5K (which I'll use for deposit and stampy duty if possible) (wouldn't this equity will be added my existing morgage 258+79.5)
Investment property: 240K (I used 60K as deposit and 19.5K as stamp duty from equity 60+19.5 = 79K)
New Existing home morgage: 258K + 79.5KPlease advise if above could be aranged in any better way
Response to Catalyst, I am 27 years old plenty of time for retirement, I have read this book from Michael Yardney (how to grow mulmillion dollar portfolia in spare time) through this book I understood that over the time when I reach to retirement age I can use my equity as living cost (which would be tax free, ofcourse more debt) compare to cashflow (which will have taxon that). I recommend you this book. it goes in very details how to live off your equity.
thanks a lot for all your response.
Saurin
all they were offered was to top up their existing morgage (Loan A). It seems like bank forces consumers to cross collateral. what is the best way to get away with that. what is the criteria that bank follows and refuse consumers to not to borrow equity as seperate loan
