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A bit lost with this

Discussion in 'Investing Strategies' started by bonecrusher, 2nd Sep, 2007.

  1. bonecrusher

    bonecrusher Member

    10th Jun, 2006
    Hi all

    The purpose is to look at the possibility of turning the PPOR to IP.

    Current Value $320,000
    80% lend $256,000

    Home loan is $90,000 I/O
    Personal LOC $26,000 (buffer)

    Inv LOC $140000
    used $70,000 into shares.

    If i made my PPOR an IP is it only the $90,000 (Interest) that is tax deductible.

    Or if i refinanced again and the Val came in higher, eg $380,000 80%LVR = $308000.
    Is it still the $90,000 that is tax deductible or can this figure increase because it is now an IP.

    Bit lost with this one if someone could explain please sort the confusion i have with this.

  2. Rob G.

    Rob G. Well-Known Member

    6th Jun, 2007
    Melbourne, VIC
    Not totally sure of your exact situation & objectives ....

    Assuming converting the PPOR to an IP is part of a sensible financial plan, then that part of your house loan that reflects the cost of acquisition may have deductible interest.

    If you have redrawn or capitalised interest for private purposes then you may have a problem in that the ATO might deem that portion a private borrowing so you may need to work out the 'deductible purpose part' and quarantine it from any private use portion, preferably separate the accounts.

    Deductibility depends on the use to which the money is put.

    This 'deductible use loan' for the IP can increase to the extent you use the money to pay relevant expenses such as repairs or improvements once you are committed to earning assessable income from the property (i.e. you have vacated it and are at least preparing it - even if prior to it being on the rental market).

    I am being very general as you really need to see an Accountant to help you budget before taking any decision. The Accountant will be able to identify depreciable items to which further deductions can be claimed to help make the investment viable. If it is not viable then the Accountant will save you a lot of time & money.