Dear all,
I bought a property that I intended on living in, but now it appears that i will be unable to live there, due to work commitments elsewhere.
I am aware that I will no longer be eligible for the FHOG, but will be able to claim this later if I buy another property that I do intend on living in.
My main concern is about the tax implications. The loan was approved on the assumption I would be living there, if i rent it out does this have any impact ? And, the loan is an offset account, I intended on paying it off ASAP, but now if it is an investment property, would I be better off dragging the payments out over the longest period, so that I get a tax deduction for all the interest I pay ?
Any help would be greatly appreciated.
Regards,
Rust992001Usually paying off the principle is of a concern if you want multiple investment properties and maximum cash flow is needed for other loans. The difference in repayments will be small in the short term. So most of the payment will be interest at the start of the loan.
As far as the loan being residential you may have problems with the bank sending statements to the investment property also under the UCCC regulations there is a different treatment of the loan as far as consumer protection being less for investment properties if you fail to pay off the loan.So you may need to notify the bank that the purpose of the loan has changed but I am not sure on this as I never did let my bank know in the 15 years I had my home loan that I changed the purpose after buying my house and renting it out.As for tax deductions the main thing is that your house is being marketed as available for rental and getting someone renting it out.
So the proof of record is on you to prove that you are receiving rental income from the property.
The connection between the loan and the property's income has to be proven. This is called a nexus in the tax law legislation.I would suggest beefing up the home insurance to cover loss of rent, malicious damage by tenants, public liability –
look for landlords insurance to cover this.Also a tax deduction is only at your marginal rate so as an example if you lose $100 you get $30 back if your margin tax rate was 30% and lose $70
Most investors ~70% are at 30% tax bracket… .it can be painful to have negative gearing for years on deflating asset. So be careful…. I think most of the investor(s) who bought the property(s) in the peak market will have a long painful period till the next cycle of growth. It means that you are actually losing money every year and losing asset value. How long can you keep losing money….
Negative gearing ONLY works when property growth++.
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