Hannes,
I have a question re. refinancing of properties to improve one's tax situation.
I bought a flat for R76 000 5 years ago. As the banks did not want to finance properties in that area, I used money from my home loan account and deducts the interest that I charge myself for the loan as you taught us.
The value of the flat has since improved dramatically and similar flats are now selling for R320 000. The block is very well maintained and there is a reserve fund of R50 000. I earn an income of R1438 per month after deductions for levy and the letting agent.
Obviously the income now exceeds the interest payment by far.
1. Would it be wise (and feasible) to ask the bank to register a loan of R320 000 over the flat and use the money to pay off part of the bond I have on the house I live in?
2. Will I be able to deduct the interest on this loan as an expense against the income of the flat, or will the receiver put a stop to it ?
Maryke Herbst
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I am glad to see the Property Pro Program is working. Five years ago people would say you were mad to invest in such a property. Today with hindsight it is easy to look back and say “I told you so” but it took a lot of guts from your side to make the commitment to come on the course and even more commitment to apply what you learned. Today you see the fruit. Well done on that property.
Now lets get to your question.
I will register the maximum bond I can get on the property BUT only pay “my” R76 000 (that I borrowed on my residential property) back.
I will not use any of the surplus unless the “sums” work out. – You know how to do them.
Yes the interest on the R76 000 will be tax deductible (Productive interest) If however you use lets say an additional R100 000 to go on holiday the interest on the additional R100 000 will not be tax deductible.
If you take R100 000 and buy a new property then the interests will be deductible on condition you can proof that your intention with the new property is to create an income. (and you must create a credit loan account)
However if you put the R100 000 down as a deposit (and not structure it correctly the interest portion will not be tax deductible)
You are more than welcome to speak to Philip Viviers our trust and tax consultant to help you with the financial structuring.
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