If one has multiple investment properties and there is equity in one that needs to be sold, is it possible to transfer the equity out of it to another investment property or ones principle place of residence so that CGT can be avoided.
I have read in a previous API magazine that someone did this and got more and more properties freeholded and just transfered the loan to another property. The tax implications of then selling a property was never explained.
Equity is the portion of the value of the home that exceeds the mortgage on the property. So the amount of equity you have in a property is only a factor of how you provide the bank with security for your loans.
For taxation purposes the interest on a loan is only deductible if the money borrowed was used for an income producing purpose ie purchase or maintain a rental property. Once you sell a rental property the loan for it will no longer be deductible even if it is secured by another rental property. To maximise the amount of your tax deductible interest the idea is to pay any spare funds off your non deductible loans ie the one for the home you are living in.
So if you sell a property for say $500,000 yet the original loan to buy the property only has $200,000 outstanding on it you should take the other $300,000 and pay that off the loan for the home you are living in. If there were other loans for other rental properties secured against the house you sold simply move the security to another property, even your own home if you choose to. The interest on the loan will still be deductible because the money was used to buy an income producing asset. It does not matter where it is secured.
None of these strategies will reduce the CGT on a rental property and you cannot roll a gain on one property into another to avoid paying the CGT. This is only available to small businesses.