Hello Everyone,
This is my first time submitting to the forum. It’s been great reading all the ideas and discussions.
I have a question on my first move into buying my first Investment Property. From the equity of my first home (townhouse), I got a pre-approved refinance loan of $500k for a second property plus $275k for my existing loan. The problem is I would like to move into the larger new home and rent out my existing townhouse.
I need to know how I can calculate my CGT on the townhouse if I was to rent it out. Also, is there any chance of getting the stamp duty back from the purchase of the second property?
I was told that an accountant should be able to make the proper allocations and “shift” all the equity to the new home and have the rented townhouse fully geared. Is this possible?
Any help to push me in the right direction is much appreciated.
Thank you,
TongHi Tong
Welcome to the forum.
CGT is only payable on the sale of the property – not when renting it out.
The interest payable on the $275k loan that is attached to your townhouse will be tax deductable when this property becomes an investment. The $500k loan on your new home won't be.
It sounds like the pre-approval that the bank has granted is based on using your townhouse as security for your next property. This isn't an ideal structure – especially if you're considering purchasing another investment property down the track.
A good independent broker will be able to structure the deal correctly.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
If you rent out the townhouse it will only become liable to CGT once it becomes an Investment property when you buy a new home and make the new home your PPOR.
The tax is then based on the period when the townhouse became an investment property (when you bought the new home), until the date you sell the townhouse, divided by the total time of ownership x Capital GainSee this link for a simple explanation http://www.ato.gov.au/individuals/content.asp?doc=/content/00237979.htm&page=81&H81
The maximum loan attributable to the townhouse as an investment is 275K. But it could be even less if you have been using the existing loan with a redraw facility that you have been drawing on.
I don’t know about getting the stamp duty back, you can only reduce you stamp duty under existing schemes. The stamp duty paid on the townhouse will form part of the cost base for calculating CGT if you decided to go down that path of it becoming an investment property.
You can borrow against the townhouse, but the use of the money still determines if the money is tax deductible. Meaning you can’t borrow the deposit for your new home and have that amount as a tax deduction.
If the townhouse is going to become an investment property, 1) pay interest only on the loan, 2) don’t spend any money on it where possible until it becomes and rental, so that the expenses are deductible.
Good luck
Thanks Mal for your information. I’ll have to read your response several times to digest the full meaning and implications. Will check out the link you provided. Property investing is starting to get fun.
BTW, I like the Gary Larson polar bear picture you chose.
Best regards,
TongThanks Jamie for your response. From my discussions with my broker, he states that the two properties (current townhouse and future home) has to be cross-collateraliized because I am seeking a loan from a the same bank. Are you suggesting the other alternative is to borrow the $100k equity from the townhouse for down payment for the new home?
Thank you,
TongTong wrote:Thanks Jamie for your response. From my discussions with my broker, he states that the two properties (current townhouse and future home) has to be cross-collateraliized because I am seeking a loan from a the same bank. Are you suggesting the other alternative is to borrow the $100k equity from the townhouse for down payment for the new home? Thank you, Tong
Hi TongThe information your broker has given you is incorrect. You can have two loans with the one bank and avoid having them crossed. You can access some of the equity in your townhouse and use this as a deposit towards your next home (using the same or another bank….depends on where the best deal is for you).
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Tong
As Jamie you can certaInly have the loan with the same lender and not have these crossed.
Of course in saying this your Broker may not want to split them for you or not know how and that could be the difference.
There are a couple of ways of shifting the debt to your current property and making the interest fully tax deductible but there are costs involved and you need to weigh up whether it is worth it.
Your current mortgage broker should be able to the numbers for you and show you the options.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
get a new broker i think.
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
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