OK so we built a house and rented it out from day one as an investment property but then moved into it nine years ago and it has been our principal place of residance. We own it and eventually want to buy somewhere else.
I will have to borrow for the new place, and would like to keep this one as an investment property.
But how? I want the debt to be for the investment property and not my own new home. And rental income will further increase my tax liability. Do I have to sell it and buy it back in a stupid sort of way with the various taaxes and charges?
Or can i borrow for the new place and fix it up for up to seven years (or pay it off) before I have to declare a new principal place of residence. Can i rent a house and still have it as my principal place of residence?
So the idea is to have my loan as a negative geared investment loan, with all the deductions etc. any ideas?
its the kind of thing to speak to a tax accountant about before you do anything. The rules on tax keep changing...., and if you do go ahead, then the accountants fees are deductible..
Couldn't you take 100% equity out of your current house to finance your new place?
I did a similar thing about 6 years back. But what I had done was although my loan was at zero (the house was paid off), I never closed the account. If the loan account has been closed, then I am not sure if you could do the same.
the reason for my comment is that the tax law is something like, for any deduction offset against income, the deduction has to be directly related to the generation of the income, eg borrowing money for a house to live in can't be offset against income generated by another property. but what would i know... that's where professional advice keeps you out of trouble..
Select to expand quoteToph said..
Couldn't you take 100% equity out of your current house to finance your new place?
I did a similar thing about 6 years back. But what I had done was although my loan was at zero (the house was paid off), I never closed the account. If the loan account has been closed, then I am not sure if you could do the same.
Yes you could do that. Banks love to do business.
Tax office works on the purpose of the funds, not depending on if it was borrowed against an investment property or a place of residence.
If you are purchasing a place of residence, the borrowing is not tax deductible.
The only option is to sale the property, use all proceeds to purchase the place of residence borrowing as little as possible then use the equity in this property to purchase a new investment property borrowing 100% plus all fees and charges making the investment property much more tax effective.
Realistically, although I have clients wanting to do this all the time, I am personally against it. By the time you allow for the initial selling cost (2.5% for the real estate agent, sometimes 3%) and the stamp duty and fees and charges associated with the purchase of the 2 new properties, it is highly unlikely that the tax benefits would make up for the losses.
You are therefore better off keeping it as an investment property, you will get taxed on the income generated but I would rather be positively geared than negatively geared any days.
That is the beauty of the offset accounts where you can offset your mortgage to reduce interest payments but retain the capacity to draw down all the funds at your convenience.
pm me if you want to discuss further (got some great rates too 
)
Select to expand quotemyusernam said..
Do I have to sell it and buy it back in a stupid sort of way with the various taaxes and charges?
Yes.
For the future, if you think you might ever want to rent out the house in which you reside, dump all of your money into a 100% offset account, but don't reduce the loan principal any more than you have to.
When you move out, just withdraw all of the funds from your offset and pay cash for the new place. Voila, you have a tax deductible loan on your investment property.
WELL can I take out an investment loan on the new house, call it an investment property, live in it for under seven years while i do it up whilst still having my old house as a principal place of residence? (even though there are renters in it?)
Select to expand quoteBuster fin said..Toph said..
Couldn't you take 100% equity out of your current house to finance your new place?
I did a similar thing about 6 years back. But what I had done was although my loan was at zero (the house was paid off), I never closed the account. If the loan account has been closed, then I am not sure if you could do the same.
Yes you could do that. Banks love to do business.
Not disregarding anything Sebol said above, my thought was that if you had to borrow anyway and you had a loan account with enough equity in it, you can draw down as much as you can without the hassle and expense of a new loan, and the owing money is on the now rental property.
But I honestly wouldn't know. My missus looks after the money in my house while I spend my time here on SB..... 
Select to expand quotemyusernam said..
WELL can I take out an investment loan on the new house, call it an investment property, live in it for under seven years while i do it up whilst still having my old house as a principal place of residence? (even though there are renters in it?)
Sure. No problem. Unless you want to claim the interest and costs on the new place against your tax.
You can have your old place as your principal place of residence, but what's that going to do for you? You are going to pay interest on the new place, which is not deductible, and tax on the income from the old place (minus your costs of course).
The tax office seem to look at what your intent was when purchasing places, even if reality doesn't work out the same, albeit they are on the more pessimistic side. If you 'forget' to rent out an investment property I doubt they will be understanding.
Once you pay off a place, they will not let you deduct the interest for any part of that loan that has already been paid off.
As with all things tax related, you can get away with anything unless/until you are audited, so don't take too many opinions as fact without checking it out yourself.
don't waste your time looking for the answer on this forum, seek professional advice. Although what 'sotired' said is spot on - you can do anything you like until you get audited
Select to expand quoteStanos said..
don't waste your time looking for the answer on this forum, seek professional advice. Although what 'sotired' said is spot on - you can do anything you like until you get audited
This^^^
Also there could be CGT applied. The ATO want their pound of flesh
I don't think asking for advice on here is a waste of time at all.
In my experience professionals, particularly accountants and lawyers, need to be asked the right questions to get the outcome you as a customer are seeking.
Like everyone else says get professional advice. I'd suggest going to a property investment forum like somersoft to get opinions on good accountants that specialise in residential property.
I don't see why you couldn't refinance your house now, borrowing up to your maximum say 80% then putting the extra cash into a mortgage offset account. Then in future when you are ready to move, you have all this cash ready to buy your new place, and a decent sized loan on your investment property. If the tax man ever asks, the reason for you refinancing was to get a better deal, and with Australia's unemployment figures hitting 6% you wanted to have some extra cash in the offset account, in case either you or your wife lost your job. Hard for ATO to dispute that.
If you were to refinance and then go house shopping right away, then ATO might have reason to be suspicious about your motives.
Tip: don't use commbanks offset account because they use the same acct number as the home loan which makes it impossible for anyone to discern whether your cash suits in the loan acct or the offset acct.
One last thing: I'd set up the loan as interest only when you refinance. Otherwise you'll still have to pay back principal while youre living in the house, which decrease the value of the loan. I presume when you say you own it, you mean outright?
You poor buggers 
such hard decisions
Watch out for Macro's reverse engineered Bitcoin it will cut you bourgeois quasi-rich capitalists to the bone.
Select to expand quoteMark _australia said..
You poor buggers such hard decisions
Watch out for Macro's reverse engineered Bitcoin it will cut you bourgeois quasi-rich capitalists to the bone.
im just waiting for him to list the e-catamaran and the oil pipeline to the other side of the world and Im all over it with my personal currency.
Thanks all. Will do some more investigating.
BTW> I think seabreeze is awesome to be able to ask questions like this. Such a diverse group of people, there are bound to be knowledgeable people out there on any subject. (except maybe the ability of a skyscraper to withstand fire :( )
Select to expand quotemyusernam said..
bound to be knowledgeable people out there on any subject. (except maybe the ability of a skyscraper to withstand fire :( )
Ohhh, I can't beilieve you just went there 
Select to expand quoteMark _australia said..
You poor buggers such hard decisions
I was going to add to this thread based on my experience and have a good gripe about the current tax system...
...then I realised basically how sad it is for me to be complaining about my 'first-world' issues.
Select to expand quoteCaptn Scooby said..
I don't see why you couldn't refinance your house now, borrowing up to your maximum say 80% then putting the extra cash into a mortgage offset account. Then in future when you are ready to move, you have all this cash ready to buy your new place, and a decent sized loan on your investment property. If the tax man ever asks, the reason for you refinancing was to get a better deal, and with Australia's unemployment figures hitting 6% you wanted to have some extra cash in the offset account, in case either you or your wife lost your job. Hard for ATO to dispute that.
If you were to refinance and then go house shopping right away, then ATO might have reason to be suspicious about your motives.
Tip: don't use commbanks offset account because they use the same acct number as the home loan which makes it impossible for anyone to discern whether your cash suits in the loan acct or the offset acct.
Sorry but none of these points are correct.
