All Topics / Help Needed! / Using another person's LOC to purchase

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  • Profile photo of kennykennykennykennykennykenny
    Participant
    @kennykennykenny
    Join Date: 2012
    Post Count: 23

    Hi guys, I have a tax deduction question that I’ve not seen asked before.

    Last financial year, my mother-in-law took out a LOC against her fully paid off IP. We borrowed from her LOC $70,000 to use as a deposit for purchasing an IP. Is the interest charged to her on this $70000 tax deductible for us? I assume it is seeing we are borrowing this money to buy an IP. However, the LOC is obviously in her name, so I’m unsure. My accountant says it’s okay because of the purpose of the loan but I would like a second opinion.

    Does anyone have a simple answer?

    Profile photo of Mark CoburnMark Coburn
    Participant
    @mark-coburn
    Join Date: 2006
    Post Count: 181

    Listen to your accountant, he has the full picture and understands your position. But having said that the answer is clearly yes if you consider the purpose of the LOC.

    Mark Coburn | Coburn & Co - Investment Advisors & Buyer's Agents
    http://coburnandco.com.au
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    Profile photo of kennykennykennykennykennykenny
    Participant
    @kennykennykenny
    Join Date: 2012
    Post Count: 23

    Thanks for answering Mark. I had some bad advice from a previous accountant so I am a bit wary this time. I didn’t want to claim for something that I wasn’t entitled to so I wanted to double check.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Kenny

    When you say “us” do you mean yourself and mum or just you mum?

    If she’s the only one on the title for the IP that the LOC was taken out against – I’d assume she’s the only one that can claim it as a deduction.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of kennykennykennykennykennykenny
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    @kennykennykenny
    Join Date: 2012
    Post Count: 23

    Hi Jamie,

    Sorry but I think I made the question confusing and misleading. My mother-in-law took out a LOC; my partner and I bought an IP using $70000 borrowed from that LOC. My mother-in-law has nothing to do with the IP my partner and I purchased. Does that make sense? She lent us that $70000 taken from her LOC. Only my partner’s and my name are on the title of the IP.

    Kenny

    Profile photo of kennykennykennykennykennykenny
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    @kennykennykenny
    Join Date: 2012
    Post Count: 23

    Anyone else with an answer?

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Yes the interest would be Tax deductible at the rate your Mother in law is charging you.

    I assume that this is the same rate as she is paying on her loan.

    Fairly standard way of structuring.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of kennykennykennykennykennykenny
    Participant
    @kennykennykenny
    Join Date: 2012
    Post Count: 23

    Thanks for your answer Richard. I’m still learning about the intracacies of property investing and learning a lot on these forums. Cheers!

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Kenny

    Do you have a loan agreement in place with your num?

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of kennykennykennykennykennykenny
    Participant
    @kennykennykenny
    Join Date: 2012
    Post Count: 23

    Hi Jamie,

    Do you mean a written loan agreement? If you do then no, we don’t, only verbal. Does it have to be written?

    Cheers,

    Kenny

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