We are looking at buying a home and living in it for now. We will basically have no mortgage on the property. In afew years time we will look at renting that property and moving to another. Is there a way to set this up so that we transfer the money from one property to the other to maximize negative gearing?
The answer is NO
Your only option is to borrow a large amount and place your funds in an offset account
Draw the funds out of offset once you convert to an investment property
Happy to discuss
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It is the reason that you borrow money that determines if it can be deducted or not.
So in this case you would need to borrow to purchase the home you plan to live in initially even though you do not need a loan to purchase it. Make sure the loan has an offset account and place your surplus cash in the offset to save on interest.
When you are ready to buy your next home and rent the first one out you can draw the funds from the offset to put toward the purchase. The interest on the loan on your original home will now be deductable.
The offset account is important. If you place surplus cash directly into the loan then re-draw to make the next purchase the purpose of the loan (buying your next home) will determine that the interest it is not deductable.
Your accountant or a mortgage broker with experience in property investment will be able to help with this.
Congratulations on getting to this position!
Brett and Ross are correct, if you don't have a loan on this property now, you can't borrow against it later to purchase an owner occupied home later and deduct this interest.
Any money you borrow against that property to invest in an income asset of any type should be tax deductible - don't get too tied up on negative gearing though, you have to lose money to save tax and it takes a very sound strategy to make that work. Depreciation is just about the only good tax loss you can have.
If you would like to talk about structuring your assets and your borrowings to make the most of both situations please get in contact through our website
As the others have said, the purpose for which you initially borrow the funds is the important thing and you can't suddenly switch horses mid race.
However if you do have an offset account with your original loan and can draw money out of that when you want to purchase your investment property, that may be a suitable structure.
Your accountant is the most qualified to advise you on this and you should discuss the best structure with him or her before you purchase so that your transition to an investment property is a smooth one.
If you wanted to discuss this further, please search for me through the "Industry experts" tab and click on my business name under "Name of Business" and all my contact details are there. I would be happy to assist you.
Bayside Finance Group
Graham Doessel - CEO - MyCRA (Specialist Credit Repair) Lawyers (LPH)
Current Rating: 4.65 / 5
I believe you need to get professional Accounting and Taxation advice as you may have additional options not yet discussed above. As I am not an account, financial advisor or taxation expert, I am not legally qualified to tell you what you can or can't claim. I believe a discussion with a property tax expert might reveal other options...
Good luck Sarah.