hi everyone , I was wondering if someone could please give me some advice ,
Last year I purchased an investment property for 430k , borrowing 250k and using 180k of my own money ,
it is receiving 345 dollars a week rent , I currently have about 150k in an offset account therefore reducing the amount of interest. I am now looking to purchase a property to live in for around 380k max , what i want to do is use all the funds that i have to pay for my property that i will live in and i want to increase the balance on my investment property so that i can negatively gear it , obviously i cant negative gear a property that i live in, how is this best done?? ie the 180k that i put down on my investment property can I reborrow this from the bank to pay for my priciple place and somehow claim it on my investment prop??? hope this makes sense any advice would be much appreciated , thanxThe interest on equity taken from your IP cannot be used as a tax deduction as it is not being borrowed for income generating purposes. It may be more beneficial for you to move into the IP and redraw the equity for the new property using it as an IP.
Just a really dumb question, how would ATO knows what would the money used for? once you refinance from your IP but use it as non income generate yet still claim on tax deduction?
i understand what you are saying Scott but I dont want to live in the area where my IP is as it it too far for work , is there any other way I can achieve this??
mrproperty.
You may have to get a bit creative. Tax deductibility is determined what the borrowed funds are used for. So you could take out all of your offset money and use that with no issues as it is not borrowed. Then set up a LOC on the property and use this for investment expenses. This will free up money you would have used to pay into your new home loan.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi there,
Unfortunately you cannot increase a loan against a rental property to maximise your tax deductions.
The ATO only allow you to claim interest on the original loan to purchase the property, or for subsequent
loans to improve the property.
So your only real choice is to use the $150,000 in your offset account as a deposit on your principle residence,
which leaves you with tax deductions on interest on the original $250,000 loan.
That would leave you with rental income of $17,940 less interest deduction of say $13,750 ($250,000 @ 5.5%),
less any other associated costs of rates,insurance etc. (don't forget potential depreciation claims!).
So you will probably end up breakeven moving forward!
Cheers,
Steve Murphy
http://www.murphyfinancial.com.auAlternatively look at selling the property into Trust at market value and borrow 100% of the valuation of the property.
Use the net proceeds after discharge of the existing mortgage as deposit together with your offset funds.
This way interest on 100% + of the market valuation becomes deductible.
You will incur Stamp Duty on the Transfer but depending on the numbers may still prove extremely worthwhile.
Richard Taylor | Australia's leading private lender
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