Investment Property Loan

[golions]

Hi all,

Several years ago, I bought a house for $350k.

I lived in it for about 8 months then had to move out. At that point, I rented it out and it became an investment property.

The bank has valued the house at $450k

I rang the bank and they said I'm allowed to borrow up to 95% of the value the property (approx $425k) with mortgage insurance .

I'd like to do this.

My fortnightly repayments on the house loan are currently approximately $1,100.
My rental income is approx $900 per fortnight

Hence, I am negative gearing and offsetting my losses against my tax.

If I increase my loan to $425k, I will have to pay approx $1,300 per fortnight.

My questions:
1. If I do increase the loan to $425k, can I offset ALL of the new repayment 'losses' ($1,300-$900=$400) against my tax? or will it still be the old offset ($1,100-$900=$200)

2. Is there a restriction on how I can spend the extra money. At this stage, I hope to use the money to:
a) Improve the property
b) Moving costs (I am moving to Melbourne)
c) Business venture

3. Will I get taxed on the extra loan amount (ie the extra $75k I get to make the loan go from $350k to $425k) that I get when I get it?

Any info would be greatly appreciated.

Thanks

 

[Nothing]

Seek advice, but my understanding is:
1. If I do increase the loan to $425k, can I offset ALL of the new repayment 'losses' ($1,300-$900=$400) against my tax? or will it still be the old offset ($1,100-$900=$200)No, you can only offset a loan that was used to purchase (or improve) the investment

2. Is there a restriction on how I can spend the extra money. At this stage, I hope to use the money to:Yes
a) Improve the property This should be a tax deduction, as it should be improving the rental return
b) Moving costs (I am moving to Melbourne) Definitely not tax deductible
c) Business venture May be a tax deduction but might be worth considering doing as a separate line of credit, keeping the business and property loans separate.

 

[Simon_Nesbit]

tants answered 1 and 2. If in #3 your asking if you'll be taxed as income, then no - that only applies on the physical sale of assets, and your home is excluded from CGT. (Not sure on the ruling, but if you had it valued when you ceased living (edit: lol, in the house) it might be based on that, not the 350 from when you purchased - regardless that's a different discussion topic).

First question: Who does your tax return? Talk to them (now, don't wait until tax time).

(the rest of this is presuming you do your own tax privately).

You claim only the fees and the interest component you pay, (not the actual repayments) as a deduction.

If you were to sell/buy again you could make it all claimable. If you had paid extra money into an offset account and withdrew it, it would all be claimable. Re-negotiating an existing loan will make any excess void, unless the additional money is used for maintaining or improving the property.

If you do your own taxes, you could try and claim the total interest payments, but an ATO audit flag could well be raised (substantial jump in interest repayments) - at which point you'd have to justify each expense, pay back differentials in tax, and face possible fines (unlikely in my experience).

My suggestion? Stick to <80% LVR and avoid insurance.