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Moving home and making current one an investment
Now I know there are similar threads buried here. The usual advice is to restructure by selling the current home to (say) and LTC and then buying the new home with the released equity thereby landing the most or all of the new mortgage on the new LTC. But why not (say) pay off the current home loan and draw down the equity to buy the new property and then draw down a loan to service the old (now investment) property. If this is considered tax avoidance, then the old method is arguably avoidance as well. And also why not keep your equity for your own home - that's not avoidance - it's just common sense. Any thoughts on this line? Particularly from accountants. Thanks.
What good timing you have. I am doing this next week!
Firstly, if you *can* pay off the current home loan, why wouldn't you have done it already?
Originally Posted by Roberto
I agree with your "common sense" argument and have put this by a couple of accountants who also think it's reasonable.
However, I'm not sure what you mean by "drawing down equity" from the existing property? If it's to buy the new one, then your own home is the purpose of drawing the mortgage and is therefore not deductible, it doesn't matter that the debt is held against a rental investment. I believe the equity needs to be "shifted" by selling the rental to another entity (such as I am doing), that is specifically for rental investments. That way, you are not only "shifting your equity" but transferring for the purpose of separating your investments from your personal affairs.
Interest on a loan is deductible, based on what the money is used for.
So if you borrow money to buy your new personal house, then the purpose is private, so the interest won't be deductible.
That is why we look at restructuring, otherwise the loan is used for the new house and interest not claimable.
Always look at the cost vs benefit, but if you are basically debt free on your existing house, then the tax benefit of restructuring will be quite large!
Ross Barnett, Coombe Smith Property Accountants - Hamilton
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Splitting hairs maybe....but isn't avoidance perfectly legal???....it's evasion that's naughty.
I think with a bit of advance planning you could have two IP's with all expenses legitimately deductible.
The avoidance of taxes is the only intellectual pursuit that still carries any reward. - John Maynard Keynes
My understanding is that tax evasion is illegal period.
Originally Posted by spaceman
tax avoidance is legal but the government can still penalise you.
Tax minimisation is the only one where the govt can't touch you.
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