Newbie advice needed

Tax deductibility is determined by purpose.

You're redrawing $200k for a PPOR purchase – this isn't a deductible expense.

This is why your loan should have been set up as IO with an offset from the start.

cheers

Jamie

OK here goes..

You originally took out a loan to buy a property. I assume it was P&I (paying off both the principle and interest)

The problem is over the years you paid off a lot of the loan. Super duper if you are to stay in the property forever, not so great if you intend to rent it out.  

Then you re-borrowed a lot of that money. NEW borrowings.

Now instead of using that to buy an investment property with which juicy tax benefits are available, you intend to use that money to buy a home to live in, or use it for lifestyle expenses. NO tax benefits for this type of loan – it is BAD DEBT! The type that makes the banks rich and the average Joe poor.

Because you didn't borrow the money back to invest with, you have to pay the interest yourself instead of letting a tenant do it for you.

Originally, you should of had an interest only loan with an offset account and paid the extra monies into that. Using a credit card for all day to day spending but making sure you pay it off in full every month (never incur interest on it) helps leave more of your money in the offset account for longer as well. This way you never actually pay off the loan, just put as much  savings/overpayments in there as you can to  'offset' the loan balance – which saves you lots on interest costs meaning you can save/build up funds faster.

When you later on pull all that money back out to buy a PPOR or for lifestyle expenses the loan amount goes back to where it originally started and is fully tax deductible when you rent the property out, negatively geared or not. NO NEW borrowings just the same old loan from day numero uno.

This is because, again – instead of paying off the loan, you just temporarily lowered it to lower the interest repayments.

If you rent it out now then as far as the ATO is concerned you will be highly positively geared because there is only a $50k tax deductible loan on the property, the rest of the loan is your own for personal use and therefore paid off at your own expense – no tax benefits for this type of loan.

Can you stay in the unit, and buy another investment property instead? You're not far from paying off the loan entirely at which point you'd be in the enviable position of having no ppor debt (bad non tax deductible debt) and only investment property debt – good because you can offset the costs of the interest.

Make sense!?

I hope that's right anyway or i'm way off too!!