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IP/PPOR and Capital Gains Tax

Discussion in 'Real Estate' started by Mark88, 30th Mar, 2013.

  1. Mark88

    Mark88 Active Member

    Joined:
    7th Feb, 2010
    Posts:
    31
    Location:
    Sydney, NSW
    Hi,

    I'm 25 year old male living at home with parents.

    I purchased my first investment property in November 2011 - 3 bedroom house in Blacktown purchased for $357 500 with current IO loan of $285 000. I lived in the property for 6 months to claim the FHOG and stamp duty exemption and then rented this property out. This property has just been valued at $400k by NAB.

    I have just placed a holding deposit on a second property in Kings Park - 3 bedroom house for $470 000 and I have saved 130K for deposit+stamp duty. I want to eventually live in this property, but I would like to rent it out for 2-3 years and pay off as much off the mortgage as possible in that time so the mortgage is more manageable for me when I move in.

    I guess I have a few accounting related questions:
    1. If I rent out the second property at Kings Park, will it be subject to CGT if I sell in the future? Do I get a valuation when I decide to move in to calculate my CGT obligations?
    2. Is there any way I can avoid CGT by maybe living in the property for a few months or so?
    3. I have read it is best to avoid cross collaterlisation of loans. Since property 1 is now valued at 400K, can I refinance the loan from 285k to 320k and use this money as part of my deposit (and my savings as the rest)? If I access this equity, am I forced to cross collaterlise or can I still choose not too? What's better?!
    4. If I do refinance mortgage 1 from 285k to 320k ...will the bank just adjust this mortgage or will I have to take out a separate 35k line of credit mortgage? Will it still be tax deductible if I move into property 2 in 2-3 years?

    I understand that no one can give financial advice, but I would just appreciate opinions.

    Cheers.

    Mark
     
    Last edited by a moderator: 31st Mar, 2013
  2. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    1. Depends o a few things. Possibly not
    2. Possibly yes
    3. You can choose not to cross - you have the choice.
    4. You should split the loan into the existing and a new portion. New portion to be used as deposit for the 2nd property. The interest on the second portion will only be deductible when the 2nd property is available for rent. So you can move in stop claiming and then move out and start claiming again - 105% of the purchaser price. Although you may have to tip in some cash depending on a few things.
     
  3. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
    Posts:
    273
    Location:
    Berwick Vic
    Mark,
    1. If and when you sell the second property, you could be subject to CG for the period it was an IP. It would be wise to get a valuation done when and if you move back in to establish an end value.
    2. Agree with Terry, depends on where your principal place of residence is.
    3. I would avoid cross securitising, simply use a different lender if you have a choice.
    4. You could refi with your existing lender, pull out the equity via a second loan (easier for accounting and tax purposes later) and use those funds as part of your deposit. While the second property is an investment property, the interest on this second loan is tax deductible. Once you move into to live, it will cease to be deductible.

    Get a new loan for second property, use an interest only with offset with a different lender.

    Good luck with it and well done for asking beforehand.
    Regards,
    Greg