Hi all,
I am thinking of the below situation and hope someone can provide some insights.
Starting point:-
- I have a property (property 1) that I am living in since day 1 and there is no mortgage. It's now worth 1mio.
- I have 1mio cash
Scenario 1
- I sell property 1. There is no CGT and I will get 1mio
- I buy a property 2 worth of 1.5mio to move in
- I have 500k left and I do a mortgage of 500k and buy back property 1 at 1mio and rent it out as an investment property.
- I end up having Property 1 as investment property and Property 2 as owner occupied. And the mortgage interest is tax deductible.
Scenario 2.
- I do a mortgage on Property 1 to draw 500k.
- I use the 500k I borrowed plus 1mio cash to buy Property 2 worth of 1.5mio.
- I then move in to Property 2 and rent out Property 1.
- I end up having Property 1 as Investment property and Property 2 as owner occupied. But the interest on my mortgage is NOT tax deductible.
And I right for the above? If yes, if anyone wants to be tax effective they need to sell first and buy back (as in scenario 1)? But this doesn't sound logical to me. Am I missing something or is there any provision in the tax law to take into account of similar situation such that the property owner doesn't need to do this unnecessary transaction?
Thanks.
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