Question for you finance gurus,
We are considering selling our PPOR that has a LOC attached used as a deposit for an IP. If we sell can this be transferred into a new PPOR and still retain it’s deductibility or is tax benefit lost and it just has to get absorbed into our new PPOR mortgage becoming new non deductible debt?
Cheers Darren
If you buy the new PPOR before selling the old the bank may transfer it. It would then still be deductable.
If you sell first, however, you will have to pay it back. If you then reborrow it won't be deductable.
Can you transfer it to the IP? If equity has increased you could reval and transfer it that way. That would be my preferred option if possible.
Its a bit tricky, but it could be done. You would just be changing the security for the loan. Just make sure it is not paid out at any stage, or deductibility will be lost.
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
Only bought our IP a few months ago so not enough equity yet.
Would a better option be convert PPOR into IP then suck out some equity to use for the next PPOR?
If you sucked out equity for the next PPOR the interest wouldn't be deductible.
You are better off moving the LOC to the new property, otherwise you will be worse off with tax as if you paid out the LOC then you would have less tax deductions and will end up with a larger loan on the new PPOR which won't be deductible.
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 Terry
Problem is I probably cant borrow enough to retain the existing PPOR and purchase a new one. I would then need to buy subject to sale which is painful.
You could still manage it:
1. Sell the existing house and have the LOC kept open by keeping some of the proceeds from the sale in a term deposit and using this as temporary security for the loan. Banks and brokers won't like doing this and will say it is easier to just pay out the loan and get a new one, but they are not taking tax deductibility into account.
2. Settle on the sale and purchase simultaneously. This won't be easy as there will be many parties to coordinate and often timings don't always work out.
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
Option 1 sounds feasible. We have more equity that the limit of the LOC so that work. Cheers Terry.
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