Can I use my mother-in-law’s home as an investment property?

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Loaning your mother-in-law money in exchange for equity in her home may not be the practical solution you’re looking for.

If I lend my mother-in-law $250,000 and take equity in her current home can I then use that as an investment property and get the tax break? I assume I would need to go to a solicitor and draw up an agreement, and specify a percentage of her current home. Maybe 20 per cent. Can this work?

You’d be paying 70 per cent of the cost and 30 per cent would be the tax break. I can’t see this being a practical solution. This is why you need to think strategically when making a downsizer contribution, because you can only make it once in your lifetime. For example, if your super balance was $1.6 million, and you had money available to make a non-concessional contribution of $300,000, you should make that before the downsizer contribution.

Death does not trigger capital gains tax , it passes the liability to the beneficiaries, who pay CGT only if and when they decide to sell the property. This should not be a problem if your son continues to live in the property – as time passes the CGT should reduce because it is adjusted for time on a pro rata basis.

 

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