I've got a fully paid off holiday house and about to enter a $350,000 loan on the home where I will be living. I am thinking of renting out the holiday house for initially 12 months and then I will see how it goes. Now, because the property is fully paid off, I need to claim 100% I get as income, and no negative gearing? How do I make the most out of this, in terms of tax etc. By the way, I will need to borrow around $20,000 to finish off the holiday house so that it's fit for renting out.
Well you should be able to get a Line of Credit on the place. Check with you accountant on how to set things up – you could borrow from the LOC to pay absolutely all expenses for the rental. rates, insurance etc and this will free up money to put into your new home loan saving tax. You should also be able to claim the interest on the $20k borrow for the repairs. And don't forget to claim depreciation of fittings and building works as well as loan costs.
You could also consider selling it to a related party and borrowing the whole costs – eg sell to a trust or your spouse etc. Stamp duty and CGT would be payable tho, but the extra interest deductions may make it worthwhile.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for that Terryw
How does would selling it to a related party work? What are the benefits of this? The holiday house is in my name solely. But the house will be in both my fiance's and my name.
NSL What you would do is sell the unencumbered house to a Unit Trust with both of you as Unit Holders.
You would borrow 100% of the value of the home and pay your Stamp duty based on the Transfer value.
Of course as you owe nothing on the house the net realised proceeds are yours to use as deposit on the new PPOR.
What you are trying to do is shift the debt burden from non deductible to deductible and then be able to claim the interest on the full amount as the purpose of the new loan was to purchase a new IP in the name of the Unit Trust.
Richard Taylor | Australia's leading private lender
Repetition.
Think posting it once was enough.
Richard Taylor | Australia's leading private lender
Thanks Richard!
Just to confirm, doing this wouldn't effec tour FHOG. ( We dont want to miss out on the free $21k
Where can I read up more about "Unit Trust"? I'd like to find more information about it.
I'm just not 100% certain of transferring 50% to my partner and would prefer to keep it under my name. Wold this be possible? But obviously to still go ahead with the Trust suggestion?No would have no bearing on your FHOG application.
Assuming your income was sufficient you could be the sole Unit holder.
Just means you would be providing the majority of the deposit so might want to come to some sort of arrangement there.
Richard Taylor | Australia's leading private lender
If I use the holiday house as equity and borrow the money for the house I'm about to start building, will I then be eligible for the interest deductions? If I rent the place obviously? The Trust stuff just seems to complex
Terryw wrote:Well you should be able to get a Line of Credit on the place. Check with you accountant on how to set things up – you could borrow from the LOC to pay absolutely all expenses for the rental. rates, insurance etc and this will free up money to put into your new home loan saving tax. You should also be able to claim the interest on the $20k borrow for the repairs. And don't forget to claim depreciation of fittings and building works as well as loan costs.You could also consider selling it to a related party and borrowing the whole costs – eg sell to a trust or your spouse etc. Stamp duty and CGT would be payable tho, but the extra interest deductions may make it worthwhile.
not_so_lucky wrote:If I use the holiday house as equity and borrow the money for the house I'm about to start building, will I then be eligible for the interest deductions? If I rent the place obviously? The Trust stuff just seems to complexNo, as the test for deductibility of interest is, 'what are the funds used for?'. As, in this case, the funds are used to builda new PPOR, the interest would not be deductible.
Dan has the nail on the head.
Regretfully no deductible interest by using the security and raising funds hence the suggestion of selling the property into Trust.
Richard Taylor | Australia's leading private lender
Actually, the funds will be used for travelling, a luxury car, speed boat and the wedding. How about that?
Dan42 wrote:not_so_lucky wrote:If I use the holiday house as equity and borrow the money for the house I'm about to start building, will I then be eligible for the interest deductions? If I rent the place obviously? The Trust stuff just seems to complexNo, as the test for deductibility of interest is, 'what are the funds used for?'. As, in this case, the funds are used to builda new PPOR, the interest would not be deductible.
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