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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

    Joined:
    18th Sep, 2011
    Posts:
    1
    Location:
    Perth
    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

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    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.