Structuring loans across two properties

Question from Narender updated on 18th May 2012:

I have just rented a property (A) which I previously lived in. It is in positive cash flow of around $80 a week. Total loan on property A is $199,000 with equity of around $110,000. The second property (B) I've bought (and currently living) in has a loan of $400,000. I'm planning to transfer the loan amount of around $95,000 from property B to property A. Please advise whether or not this is right?

Our expert Mark Withers responded:

Regardless of the security for the loans the interest is only deductible from the loan that purchased the property now rented i.e the $199,000 loan. None of the interest on the loan that was used to buy your new home is deductible even if the old home secures the loan. Changing the loan security around won't alter this. You could consider a restructure that involves a new entity borrowing to buy your old home and using it to derive rent. This would release your capital to repay the debt on your new home. You must be mindful of tax avoidance rules so the resturucture would need to be commercially based and ideally part of a wider estate and matrimonial plan. You should seek advice from a chartered accountant.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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