I currently own outright a property worth about $300000.
I am purchasing another property to live in.
I am trying to decide if I should sell the property or rent it out.
My preference is to keep the property but if I rent it half the rent will go to tax.
Does anyone know if there is any way I can keep the property and rent it out without having to pay
so much tax?I will appreciate any suggestions anyone may have.
why would half the rent go too tax?
Byronent
Adelaide SAOriginally posted by byronent:why would half the rent go too tax?
Because Hugo owns the property outright, there is no deductible interest, only the basic outgoings and depreciation. Hence the bulk of the rent will be taxable at the appropriate tax rate.
Any loan to purchase another property to live in cannot be offset against the income of the IP.
However, if Hugo were to rent the property and borrow against it to purchase other IP’s then the loan would be deductible.
Any income derived from the $300k is going to be taxable whether it be interest, rent or dividends.
Are you borrowing to purchase the other property you wish to live in? This is the other factor affecting your decision.
Cheers
JeffThanks for the reply Jeff.
Yes I am borrowing $388k to purchase the other property I wish to live in.
Although if I sell the property I currently own I will only need to borrow 88k.
This is the problem.
As I said my preference is to keep the property and use the rent to help me pay the new property off.
Although I will be paying a lot of interest on the loan of $388k and I don’t know if it’s better to,
1. Pay the interest and use the rent I get after tax to help me pay off the loan.
2. Sell the property and reduce the loan to 88k
I would sell the property, use the cash to purchase the new home, then borrow against the equity of the new home to buy investment properties. This means you won’t have to pay capital gains tax on the proceeds of the sale (assuming it is currently your PPOR) and the interest from the IP’s will be tax deductible.
I hope that makes sense.
If your current house has appreciated dramatically in price over the past couple of years, chances are it is either fully valued or over-valued. Selling it will ‘lock in’ your gains. Given that the HPI of the last six years cannot continue into the future, I don’t see how you could lose by following this strategy. Holding an asset that is either fully valued or over-valued at the end of a massive bull run is risky, borrowing heavily against it is dangerous…
All IMHO of course, but there is a very good case for this prediction and little to no evidence to the contrary.
Cheers, F.[cowboy2]Hugo,
I think you need to decide if you are to be a property investor or not. If you have some emotional attachment to the property then this will ultimately effect your investment decision.
You need to set your goals and determine if property investing will help you achieve those goals. It isn’t for everyone.
Things you will have to look at are:
– what the property will rent for?
– what additional tax will you pay on the rent?
– what will your interest costs be on the new PPOR?
– what will be the exit costs if you sell now?
– what will the exit costs be if you rent it and sell later?
– would you purchase further investment properties?While I’m not in favour of basing my decisions on indices you would seriously need to determine the real value of your property as an investment. If the property rented for $X, how much would you pay for it as an investment? If it is less than $300k I’d look at selling it because of all the reasons CrownOfGold has mentioned.
Cheers
JeffThanks for the help guys.
One last question
Does anyone know how much depreciation you can claim on a 10-year-old property?
And can anyone recommend a good Financial Adviser or Accountant?
Just a quick one….
Possibly you could increase the loan on your rental property(make it as much as possible) and have a small loan on your “principal place of residence. It is always quite handy o keep a loan open somewhere along the line, even if you have the ability to completely pay it out.
PM me and I can give you a good contact in both financial planning and accounting.
Sorry for the hastey reply.
J.
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