All Topics / Help Needed! / This may be too simply but i really need to know

Viewing 11 posts - 1 through 11 (of 11 total)
  • Profile photo of mddedfmddedf
    Participant
    @mddedf
    Join Date: 2015
    Post Count: 43

    I am still researching our first investment property. With the investment loan, is the interest part tax-deductible or the principle and interest both tax-deductible?

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    ONLY the interest.

    Generally we structure investment loans to be interest only, that way you can use the funds which would otherwise be used to pay the investment loans principle to pay down your OWN non tax deductible home loans. This increases deductibility, reduces your home loan faster.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of mddedfmddedf
    Participant
    @mddedf
    Join Date: 2015
    Post Count: 43

    Thanks for your reply, Corey.

    What about if my house is interest only as well, we r thinking of upgrading in 5-10 years, we got suggested to use interest only loan for both home property and investment property.

    Profile photo of TheNewGuyTheNewGuy
    Participant
    @thenewguy
    Join Date: 2014
    Post Count: 151

    See if you can get an offset on your home loan. Otherwise I would change to P&I with an offset. What was the reason for going IO on the home? What do you do with your excess cash?

    Profile photo of joeygbhjoeygbh
    Participant
    @joeygbh
    Join Date: 2007
    Post Count: 8

    What do you do with your excess cash

    I’d save it for a rainy day. Interest is the same regardless but you get to keep the cash.

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

    What about if my house is interest only as well, we r thinking of upgrading in 5-10 years, we got suggested to use interest only loan for both home property and investment property.

    Park all savings in the offset linked to your owner occupied loan.

    When you move onto your next home – use this cash to cover deposit/costs and/or transfer it into a new offset linked to thew owner occ loan.

    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 BuyersAgentBuyersAgent
    Participant
    @knightm
    Join Date: 2005
    Post Count: 338

    What about if my house is interest only as well, we r thinking of upgrading in 5-10 years, we got suggested to use interest only loan for both home property and investment property.

    Park all savings in the offset linked to your owner occupied loan.
    When you move onto your next home – use this cash to cover deposit/costs and/or transfer it into a new offset linked to thew owner occ loan.
    Cheers
    Jamie

    @mddedf its great to come to forums like this an learn! Congrats on beginning the journey it is much cheaper to learn by asking than by getting ripped off with a poor transaction first time so well done.

    The post above is the difference between trying to work everything out on your own vs finding a great team of partners to work with. Quality brokers like @cjaysa and @jamie-m will speed up the learning and ensure you get the right loans, instead of a bad structure or product. I have personally seen Jamie do some very fine work with my own clients and have never regretted it.

    BuyersAgent | Precium
    http://www.precium.com.au
    Email Me | Phone Me

    South Coast NSW Independent Buyers Agent - Wollongong to Batemans Bay and Regional NSW. DOWNLOAD OUR FREE 14 POINT PROPERTY BUYER'S CHEATSHEET to avoid painful mistakes at precium.com.au

    Profile photo of mddedfmddedf
    Participant
    @mddedf
    Join Date: 2015
    Post Count: 43

    Thanks very much for all your help, it is such a supportive community here!

    If I use P&I loan with offset account for my PPOR now, when later on I want to change PPOR to Investment property, can I redraw mortgage payment thus maximise tax-deductible income?

    For example, after 5 years, if I have paid my PPOR mortgage from $300k to $200, can I redraw the $100k to get back to $300k then change it to IP? So I can get $300k interest tax deduction.

    Sorry for my crazy thought and pls tell me if I am wrong.

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

    Hi Mddedf

    Yes you can redraw the funds but the interest will not be Tax deductible.

    Next issue is the total loan can become contaminated so if in doubt go Interest only with offset.

    Some lenders charge a higher rate for an interest only loan even on a PPOR so your Broker should be able to dig around and find something for you that should suit.

    Cheers

    Yours in Finance
    0-40 properties in a decade. Ask me how.

    Richard Taylor | Australia's leading private lender

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    mddedf: When you redraw funds, it’s counted as borrowing again in the ATO’s eyes. Tax deductibility is determined by the usage of the funds – so unless you used the redrawn funds from an investment purpose it would NOT be tax deductible.

    This is where interest only with an offset account becomes so important, as you can pile the funds into the offset account and freely access those funds, whilst keeping the full debt tax deductible for the future IP.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of laurieklauriek
    Participant
    @lauriek
    Join Date: 2015
    Post Count: 35

    Another thing to bear in mind re. Tax deductibility is that it’s the use of the funds that determines deductibility NOT what the loan uses for security.
    Ie. if you borrow against equity in your PPOR and use it to purchase and IP then it IS Tax deductible.
    whereas if you took a loan against equity in an IP and used it for renovating your PPOR then it wouldn’t be deductible.

Viewing 11 posts - 1 through 11 (of 11 total)

You must be logged in to reply to this topic. If you don't have an account, you can register here.