All Topics / Help Needed! / When loan is in my name only but the house is in joint names, does that mean I have all the negative gearing benefit?

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  • Profile photo of housegoodieshousegoodies
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    Hi Guys, I have a silly question. When the loan is in my name only but the house is in joint names, does that mean I have all the negative gearing benefit? My wife doesnt work due to a problem with her back. I just got a new job paying $36000 a year on top of my income of $45000. If I put the investment loan in my name only but the IP title in joint names, does that mean I can have all the negative gearing benefit on the loan? And if the house is in joint names does that mean I can have half of the depreciations only because its in joint names?Sorry about the silly question, I am really new to this and I am getting totally opposite advise from different people.Many thanksB

    Profile photo of devo76devo76
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    Other way around. Its who owns the property not who is on the loan. If you want all the neg geareing put the house in your name. The loan can be in yours or both names. It does not matter. Just remember if you sell. The capital gain will be worked out on your wage. not the wifes.

    Profile photo of BankerBanker
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    Devo 76 is part correct but it will depend on your accountant.

    It's an area where there are mixed views.

    Logic would say that the person(s) on title get the depreciation and the person(s) on the loan get the interest deduction.

    Most accountants that I come across work on this basis. Therefore assuming you’re are both 50% owners of the property; you get 50% on the income each, claim 50% of the depreciation and costs each and then you get 100% of the interest deduction. In your circumstances this would be good as you get less income but more interest deduction – this equals more paper loss and better tax benefits.  

    If the property was brand new and depreciation was high you might want to have more interest on title; if the depreciation is low and the interest is high: – you want less income (sacrifice some depreciation) and get all the interest.

    Other accountants will argue that technically you have borrowed 50% of your loan to buy your 50% of the property and the other 50% of your loan to lend to your wife to enable her to buy her 50% of the property. Therefore may claim some of the interest in your wife’s tax return.

    I would simply claim first scenario if your accountant is happy with it: –

    Profile photo of devo76devo76
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    Most accountants I speak to are only concerned about the property owner. Not names on the loan. My understanding is the ato look at it this way also.

    Profile photo of housegoodieshousegoodies
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    Thanks for sharing your thoughts on this guys, I was advised by my Mortgage Broker to set up loan in my name only but the house is in joint names. Would it be a good idea to get the answer straight from the horse's mouth? Like ringing the ATO for further clarifications? The last time I rang ATO the guy on the phone didn’t really know what he was talking about apart from "Consult your accountant".

    Profile photo of devo76devo76
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    housegoodies wrote:
    Hi Guys, I have a silly question. When the loan is in my name only but the house is in joint names, does that mean I have all the negative gearing benefit? My wife doesnt work due to a problem with her back. I just got a new job paying $36000 a year on top of my income of $45000. If I put the investment loan in my name only but the IP title in joint names, does that mean I can have all the negative gearing benefit on the loan? And if the house is in joint names does that mean I can have half of the depreications only because its in joint names?Sorry about the silly question, I am really new to this and I am getting totally opposite advise from different people.Many thanksB

    It couldnt hurt but you will likely get someone that is not that switched on. Just keep chasing.As stated above there might be some issue to what i have said but it is not a show stopper.I remember some time back an artical in an Australian property mag mentioned who was on the loan migh have an affect. I wrote in and questioned this response as all i have spokent to said its who owns the property that is important. They printed my question and i cant remember their exact response but it was along the lines of getting something official typed up stating that the house was mine even though the wifes name was on the loan!!!!! I am still certain that if one persons owns the property, they can claim all the tax advantages( and CGT disadvantages).regardless of who is on the loan.

    Profile photo of TerrywTerryw
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    I would say generally that it is only the title holder that can claim the interest and also all costs. The other person just assisted with the borrowings and has essentially onlent that money to the title holder to make the purchase. This might be different if the title holder is acting as trustee for the 2nd person though.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of WJ HookerWJ Hooker
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    Profile photo of BankerBanker
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    I just read the link;

    “Interest on money borrowed by only one of the co-owners which is exclusively used to acquire that person’s interest in the rental property does not need to be divided between all of the co-owners.”

    .

    Profile photo of BankerBanker
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    Also – just called ATO on 13 26 21.

    They have said interest can only be claimed if your name is on the loan. In this case husband and wife have purchased th property however husband is being charge interest expense. She cannot claim interest as she has not been charged interest. She does however get 50% of income and capital gains if sold.

    Husband can not claim more than 50% of other expenses.

    Profile photo of devo76devo76
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    Housegoodies. If you want the neg geared benefites. Purchase the house in your name only. But remember when you sell. The profits will be added to your wage only. Also if it turned positive it will also be added to your yearly income. Consider the long term as well as the short term. But most importantly . Take everything you read here with a grain of salt. Get advice from those licensed to give it before you sign on the dotted line.

    Profile photo of TerrywTerryw
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    This is strange. I thought it was the other way around, but there are 2 people on title with only 1 on the loan. I have never seen a bank do this. usually all title holders must go on the loan. Another way would be for the second person to give a guarantee. But just one person would be a problem as they don't own the whole property, just part so how could they mortgage the whole property?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of BankerBanker
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    They would have to be guarantor. The loan contract would be to the borrower supported with a guarantee; the mortgage doc would have to be signed by all title holders to be accepted by the titles office.

    Profile photo of devo76devo76
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    Still sounds strange to me. I have always been told the title holder gets all deductions. A partner on the loan is considered to have gifted the money in regards to tax. If this turned out to be wrong there would be many people I would like to have some harsh words with

    Profile photo of TerrywTerryw
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    Doesn't sound right to me either. I would argue that the person on the loan is borrowing on behalf of the other person, as bare trustee, and therefore she is entitled to claim the interest.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of amyirish17amyirish17
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    Terryw

    is it possible to speak to u im not really sure how this thing works you seem to know alot about everything really need some help
    Amy

    Profile photo of TerrywTerryw
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    Say you buy a property with someone 50/50. You borrow 100%. Of but you only own half of the property so you can only claim 50%. Makes sense I guess, but the tax deductions for the other 50% are wasted. You could argue that you borrowed the other 50% and on lent it to the 2nd person. Who used it to buy their share. They pay you interest and you pay the bank interest = your income from interest is the same as your expense for interest, for this person.

    Amy, yes.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of WJ HookerWJ Hooker
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    Hi,   

    Just by chance, last night I went to an ATO seminar on Buying, Keeping and Selling Investment Properties.

    There were lots of people there.

    One question asked was about borrowers and names on contract. It's actually the opposite to this but maybe gives some insite."

    If the loan is in both names and property is in one name – can one person claim all interest or both share interest ? "Answer – NO.

    Each borrower shares the interest – thus only borrower with name on property can claim against it.

    So my guess regards opposite – one name on borrowing and two on property, would be that the borrower can claim half the interest ( since only 50% of money used for investing – other 50% given to spouse or other person thus not used directly for investing ). Also can only claim 50% of bills and 50% of rent etc since a joint owner.

    There were too many people lined up at the end to hang around and ask about this senario.

    Profile photo of devo76devo76
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    I still don’t believe it. My accountant confirms also. As terryw says the second person is basically gifting.i wish I could find the magazine artical. The only grey area they mentioned was getting something formally written up stating the agreement with your partner although they did say it would probably not be needed as the ato understands and agrees with this setup.

    Profile photo of BankerBanker
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    As I said in my first post it’s an area where there are mixed views.

    If you borrow for investment purposes I think your are pretty safe. If I borrowed in my name to invest in shares or property for my wife – I would claim the interest in my name. You can all get on the phone with the ATO (call ther hotline) and they will confirm you can not claim interest on a loan if you are not an applicant on the contract…just as you can not claim depreciation on a property if you are not on title.

    If husband and wife buy a property in joint names; but the loan is 100% in his name; he is incuring the costs for interest – not her. Therefore he claims. Not her.

    Why don’t you all jump on the phone and call the ATO then post your responses?
    There hotline number is above in my other post. Mix the scenario up a little so we don’t confuse them.

    P.s.

    My scenario was as follows;

    if I purchase shares in joint name with my wife; and the loan is in my name only, can she claim half the interest as she owns half the investment.

    The lady on the phone put me on hold for 7 minutes and then came back with; no. You are incuring the expense therefore you must claim. Your wife will have to declare Her portion of dividents and future capital growth.

    Anyone else want to give it a go?
    I’m sure we will get mixed responses.

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