use equity for deductable or non deductable?

My wife and I would like to buy another house which would be our ppor and our current house would become a rental. We haven't had the current house valued yet but might have 30-40k of equity.

If we wanted to buy nowish we would have to use that equity. We are both on approx 50k a year. How much would we miss out on in deductablity by using that equity purchasing a ppor, rather than using it for investment?

 

No-one? I thought this would be an easy one for a "math-y" type.

 

Just throwing numbers around as it is 2:45am...

30-40k x interest cost (%)
About $2,400 to $3,200 at 8%

Better in your pocket than the ATOs

Technically equity isn't deductible, but I know what you mean by have loan value less equity, etc...

Cheers,

Dan

PS Before making an investment decision speak to your Accountant, FPA registered Financial Planner or Tax Adviser.

 

Dan,

Have you considered the interest expense saved on the PPOR loan by using the equity ?

That comes from after-tax income.

Cheers,

Rob

 

If you use the equity to purchase a new PPOR you will miss out on 100% of the deductibility. Deductibility of interest is determined by the use of the funds. Since you would be using the funds to purchase a PPOR, then the interest is not deductible.

Mark

 

Bottom line, how much cash would it cost us not being able to have 30k being claimable on tax?

 

$801 per year [(30k*8.5%)*31.5%]....

Its not huge $$ss...

That figure might change if your villa makes a 28k loss each year (which seems a bit high)

 

Ah right, okay I get ya. I mistook your question to be would the interest be deductible. Have you thought about buying the PPOR, then renting it out for a while, paying down as much of the loan as possible, then moving in?

Yes yes, there are CGT issues and blah blah, but you're not planning on ever selling it, right?

Mark

 

Thanks for the replies. I don't ever want to sell property. I figure I can leverage captial gains via lines of credit and pull out value that way. For $801 we arent going to worry about whether that increased debt is deductable or not. After pay day we'll forge ahead, get this place valued, and if there is enough equity to use (and we'll consider going above 80% perhaps as far as 95% LVR depending on the LMI cost) we'll start shopping for another house. Then with two properties we'll start building up Navra so we have a bit of an income stream to assist with negative gearing (between the two of us perhaps 2k a month could go into Navra Retail)