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From: Mike .


Using Equity
From: Lisa
Date: 1/13/00
Time: 7:55:23 AM

My partner and I are currently renting, but have enough equity in an IP to purchase a property for us to live in, "renovate and hold", and hopefully build up enough equity in it, to then purchase the next one, and so on.

My query is, if we refinance, and pull $30,000 out of our IP, because it is being used as a deposit for an owner occupied home (even if we are only planning to live in it for six months), is the interest on the increased loan tax deductible, or is my accountant going to want to separate the two amounts, because the $30,000 is not being used for investment purposes (even though to our way of thinking it is)?

I hope I didn't make that too confusing!! Thanks

 

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Sue1

Reply: 1
From: Mike .


Re: Using Equity
From: Sue1
Date: 1/15/00
Time: 8:31:55 PM

Dear Lisa, Les and I had the same discussion not long ago. Look back at previous entries. When you first take out the loan to buy the house you are going to live in you won't be able to claim the interest on that loan because the purpose of the loan is to purchase an owner/occupier home not an investment property. BUT as soon as you move out of that home (if that is what you plan to do) and start to collect rent then from the first day you rent it out you can then claim the interest on the loan because the loan is now for a home that IS an investment property.

When you first move out of your home and rent it out you have 6 years in which you can still nominate that house as your principle place of residence and not have to pay CGT if you sell it. This is for people who have bought a house then maybe get a temp job transfer and want to rent out their house until they get back. But you can only have 1 principle residence at a time. So if you have bought another house and are living in it you have to decide which one you are going to consider your principle place of residence.

Of course if you never plan on going back to the "old" house then this is not a problem. The next house you buy and renovate will become tax deductible when you rent it out etc. I think this is a great way to go as long as you like renovating and constantly moving because if you buy the house as owner/occupiers you pay a lot less in Stamp Duties than if you buy as an Investor (in Qld anyway).

The only catch is that you must live in it for a minimum of 6 months to qualify as owner/occupiers and be allowed to have paid the reduced Stamp Duty. That's no problem if you are going to renovate anyway. Check it out for yourself.

Cheers Sue1