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Discussion in 'Real Estate' started by wokka59, 5th Apr, 2013.

  1. wokka59

    wokka59 New Member

    Joined:
    5th Apr, 2013
    Posts:
    2
    Location:
    Sydney NSW
    Hi all

    This is my first post so here goes. I got married 4months ago. My wife and I lived in separate properties. Mine is worth 1.1k and has a mortgage of 380K with 90K in an offset. My wife's is worth 600 with a mortgage of 250, but no offset.

    Now I live together in hers and we rent out mine for 850 a week. I understand that the interest on my loan is now tax deductible. The plan is to continue to rent out my place to finance a renovation in 2 or 3 years.Then to move back to my place after the renovation and rent hers out(the one I am living in now)
    Both our properties are still in separate names.I am the major breadwinner.

    I saw my accountant last week and he suggested refinancing both my loans.2 separate loans with offsets. Increasing my loan to increase the interest as a tax deduction.

    I got a bit confused about what he said in relation to moving money around from the loans when we move back to my place

    Could some kind person advise me on a good course of action and to clarify things

    Any other suggestions are most welcome

    Thank you

    Wokka
     
  2. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    Increasing your loan won't make it deductible.

    Deductibility depends on what the money is used for.
     
  3. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    For starters what I would suggest you consider is

    Change both loans to interest only. Get an offset on the wife's property. Move all your offset cash into this one and then continue to only pay interest only.

    In a few years when you move back into the other property in your name take the money out of the offset and place it into the offset on that property.

    This way you are saving non deductible interest and maximising deductions.
     
  4. wokka59

    wokka59 New Member

    Joined:
    5th Apr, 2013
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    Location:
    Sydney NSW
    thanks Terry,much appreciated

    Wokka
     
  5. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
    Posts:
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    Location:
    Berwick Vic
    I agree with Terry.
    The use of an offset is primarily to reduce interest and on the property where you do not get a tax deduction for. As your own property is now an investment property for 2 to 3 years, then as Terry says, change the loan to an interest only (IO) and you can claim the full interest amount on $380k as a tax deduction against your income. This loan does not yet need an offset facility.

    By changing your wifes loan to an IO as well with an offset (as it is now your primary place of residence (PPOR)), move your $60k across into this offset. It will reduce the interest cost that is non deductible.

    I suggest if you are able, continue to make the same level of payments as before but the extra now goes into the offset. In that way you will build funds needed for your renovation without needing additional (non deductible) borrowings.

    When you move back into your own home, your wife's becomes the investment property with a $250k mortgage that is now an IO loan and the full $250k interest component is tax deductible. You change your loan to one with an offset and whether you continue with an IO loan or convert to a P&I loan will depend on your own future goals and plans. You move the funds in her offset to your new offset against your home.

    If you need clarification, please contact me. Well done for seeking further advice because most accountants have little or no idea.
    Good luck
    Greg
     
  6. Pete Ramoza

    Pete Ramoza Active Member

    Joined:
    29th Jul, 2012
    Posts:
    40
    Location:
    Brisbane, Qld
    A friend of mine is in a similar position - you've answered my question before I had to ask it! Thanks!