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Should I buy a new home and rent out my existing house?

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Buying a second home to live in whilst retaining your existing home requires consideration from a number of different angles.

Firstly you will need to discuss the taxation effectiveness with your accountant and in broad general terms this should include negative gearing and capital gains tax. I cannot stress enough that you need to seek your own qualified accounting and taxation advice that applies to your circumstances and the statements following are general in nature. 

If you rent out your existing home, Capital Gains Tax (CGT) may apply for period rented proportionally to the period owned. It may be wise to get a valuation on the property at the commencement of renting it out as this may come in handy when you need to work out your capital gain or loss with your accountant later down the track.

Interest and other costs on your existing home loan may be offset against rental income for tax purposes however the interest on your loan for the new home will not be whilst you live in the property. It is likely that you have paid off or reduced the debt on your existing property but may have to borrow for your new property hence the proposal may not be as taxation effective as buying the new property for investment.

So basically it may be more tax effective to purchase a new property as an investment instead of your new home to reside however this is not always in line with the reason why people want a second home. So if you wish to upgrade your home and have an investment property your accountant may even suggest selling the home first, purchasing your new home and then acquiring an investment property to maximize your tax effectiveness.


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