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Increasing a ppor loan & converting it to an ip

Discussion in 'Accounting, Tax & Legal' started by L Plates, 19th Sep, 2011.

  1. L Plates

    L Plates New Member

    18th Sep, 2011
    Hi everyone, we are renting out our PPOR (worth 500k, owe 20k) and are wanting to buy elsewhere but use the equity in the rental to pay for a new PPOR. Is there any ATO law stopping us from moving back into our PPOR for a few weeks, increasing the loan to 350k, then re-renting it and claiming 100% of the interest on 350k as a tax deduction?
  2. Terryw

    Terryw Well-Known Member

    9th Jun, 2006
    Yes. It doesn't work that way I am afraid.

    The security for the loan doesn't matter, it is purpose of the loan that counts. What is the purpose of the loan increase? it would be to fund a private residence and therefore the extra borrowings wouldn't be deductible.

    Since you have a large amount of equity that is going to hurt. A possible way to minimise the pain may be to sell half your house to your spouse (or all if owned by 1). It may cost you a bit, but the spouse can borrow to buy this and increase tax deductions for many years to come.