Hi guys,
I've got a query re neg gearing. Here's the situation. I'm developing a block in Sydney's outer west. But I'm renting the property out for six months before I demolish it, then start building. I've gone halves in the deal with the folks.
The details are – I borrowed the full amount for the property at $435,000. But myself and my parents are both on the title.
They then transferred 200,000(from a LOC) to me. Which I'm putting in an offset account. So effectively both our debts at the moment are around 200,000.
Then when more capital is needed I'll pull money from the offset, hence increasing the funds I pay interest on. My parents will do the same with the LOC.
So here's the question. As this is an investment property, can I claim neg gearing on the shortfall between the rent and interest repayments? And what is my position once the building begins?? Is the interest I pay on the construction loan also tax deductible.
And is it ok if the account my interest repayments come out of is also used to make repayments on other IP's that are buy and hold??
Thanks for sticking with me!
Any advice would be great!
Dean
If you are renting the $435,000 house out then the (interest on $435,000+ council rates + insurance+ water rates) – rent is claimable against other income but pro rata for 6/12 of any yearly costs / income as 6 months.of renting out.
The construction costs and interest on the construction costs get added to the cost base to reduce CGT when you sell the development. The interest on $435,000 would become a capital holding cost once you demolish the house and would be added to the cost base from that point in time of demolishing.Should be ok using same account for repayments as long as you are able to keep a track and keep records on what interest costs are for the development.
You would be able to claim interest in propertion to ownership on title. You parents have essentially on lent money to the partnership so they could charge you both interest and this would be income to them and a deduction to you, but they could claim the interest they pay as a deduction too. It may work out, or not, that they could charge you a higher rate if the loan is unsecured.
I am a bit owrried about you borrowing money and putting it in an offset. The interest may not be deductible later if the borrowed funds are mixed with non borrowed.
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 taking the time to provide feedback guys.
And Terry, I'll look into what you were talking about.
Cheers
Dean
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