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Do i need a LTC for my rental property? Help pls.

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  • Do i need a LTC for my rental property? Help pls.

    Hi guys,

    Sorry for this dump question, but we desperately need some help.

    My wife and I are planning to use some equity from our existing house to purchase a new property. After the settlement we will move to the new one and keep the current one as a rental. However my mortgage broker told me today, if I want to maximise the tax losses i have to transfer the current house to a LTC, which meant I have break my current mortgage term and pay a separate legal fee for the transfer.
    I am really confused; can i not keep the house under our names and ask the bank to restructure the mortgage? Any advice will be much appreciated.

  • #2
    Talk to Rosco who contributes to Propertytalk.
    Or click here:
    Coombe Smith Property Accountants www.cswaikato.co.nz

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    • #3
      thanks, hi Ross will you be able to answer this one for me?

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      • #4
        I would recommend getting your structure set up with good financial advice at the very outset

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        • #5
          Deductibility of interest depends on what the interest was for, not what it is on.
          So your current house mortgage was to buy to a house to live in.
          So the interest is not deductible.
          Even when you rent the house it still isn't deductible.
          Which is why you need to talk to a prefessional to get your structures right now.

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          • #6
            Interesting...we rented out our house we used to live in starting April this year...so does that mean our interest won't be deductible unless we sell it to a company? I assumed it was...my Dad seemed to think it was and he is an accountant...albeit he admits he hasn't looked at property law for a very long time as its not his field...what sort of expert do we discuss this with? A property accountant?

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            • #7
              Originally posted by nicsa122 View Post
              Interesting...we rented out our house we used to live in starting April this year...so does that mean our interest won't be deductible unless we sell it to a company? I assumed it was...my Dad seemed to think it was and he is an accountant...albeit he admits he hasn't looked at property law for a very long time as its not his field...what sort of expert do we discuss this with? A property accountant?
              Probably not and yes you need a property accountant.

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              • #8
                Originally posted by nicsa122 View Post
                Interesting...we rented out our house we used to live in starting April this year...so does that mean our interest won't be deductible unless we sell it to a company? I assumed it was...my Dad seemed to think it was and he is an accountant...albeit he admits he hasn't looked at property law for a very long time as its not his field...what sort of expert do we discuss this with? A property accountant?
                Say you own personal house worth $400k and $100k debt - Property A.
                You then buy property B, new personal house worth $500k and $500k debt
                Property A is now a rental.

                Without a restructure done correctly, only the interest on the $100k loan will be deductible. As only this loan was used to buy the Rental property A. The $500k loan is used to buy property B, which is your personal house, so no deductions allowed!

                I would suggest getting advice from a chartered accountant who specialises in property!

                Ross
                Book a free chat here
                Ross Barnett - Property Accountant

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                • #9
                  Originally posted by timtam View Post
                  Hi guys,

                  Sorry for this dump question, but we desperately need some help.

                  My wife and I are planning to use some equity from our existing house to purchase a new property. After the settlement we will move to the new one and keep the current one as a rental. However my mortgage broker told me today, if I want to maximise the tax losses i have to transfer the current house to a LTC, which meant I have break my current mortgage term and pay a separate legal fee for the transfer.
                  I am really confused; can i not keep the house under our names and ask the bank to restructure the mortgage? Any advice will be much appreciated.
                  Hi timtam,

                  I have just posted a reply to another question in this thread, that probably answers your question as well. Yes you need expert advice on your structure to see if the costs of restructuring are more then the possible benefits.

                  Ross
                  Book a free chat here
                  Ross Barnett - Property Accountant

                  Comment


                  • #10
                    Originally posted by Wayne View Post
                    Deductibility of interest depends on what the interest was for, not what it is on.
                    So your current house mortgage was to buy to a house to live in.
                    So the interest is not deductible.
                    Even when you rent the house it still isn't deductible.
                    Which is why you need to talk to a prefessional to get your structures right now.
                    This is incorrect ....don't argue...it just is.

                    The test for deductibilty (simple version) is income generated ....rent is income thus interest is deductible.

                    @ the OP

                    Not Rosco ....BUT!!!!!

                    IMHO you need to be careful ......I believe what you're trying to do is technically tax avoidance and a bit naughty.

                    You have the right to arrange your affairs in whatever manner you want ......but if the main reason for doing so is to reduce tax then it's tax avoidance which the taxman frowns upon.

                    The question: "how do I arrange things to pay less tax" is naughty and what I think you're asking

                    Not say you shouldn't arrange things to pay the least tax possible, in fact I encourage it, just that you have careful how you go about it.

                    Personally I think you should look at a trust ......but it's my personal opinion only

                    good luck

                    cheers
                    Spaceman

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                    • #11
                      Originally posted by spaceman View Post
                      IMHO you need to be careful ......I believe what you're trying to do is technically tax avoidance and a bit naughty.

                      You have the right to arrange your affairs in whatever manner you want ......but if the main reason for doing so is to reduce tax then it's tax avoidance which the taxman frowns upon.

                      The question: "how do I arrange things to pay less tax" is naughty and what I think you're asking
                      Hopefully the newly funded IRD, coupled with their new computer system, will up their audits of these suspect restructures.

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