Anyone have a mortgage on an investment property but rent where they live?

[~mamaspice~]

We bought a new little 3 bedroom duplex 18 months ago. And it suits us okay at the moment but we really would need to upgrade to a 4 bedder when we have another bub (plus we have no yard and the kids NEED a yard.)

If we sell this Place and buy a 4 bedroom home in our area we'd be looking at having to increase our mortgage by about $50-60K and that would make things extremely tight.
So I am interrested in finding out about the option of renting out our duplex and renting a 4 bedroom home to live in.

Is it right that the shortfall between the rent we receive and our mortgage repayments is tax deductable? How does it all affect our FTB eligibility?

Our mortgage repayments are currently $545 per week. We'd get about $390 per week rent for this place and we could rent a 4 bedroom home in the same area for about $440 per week.

Any advice/tips would be greatly appreciated

[Yeddi]

I'm not doing this now, but I have in the past. The difference between the rent you receive and the interest on the mortgage is tax deductible, but not what you pay off the principal. However that's not all that is tax deductible, so is your real estate management fees, house insurance, and landlord insurance (only costs $250 a year and well worth it), rates (both water and land), 2 flights back a year to see the house if in another state, and any repairs you have to do while you have someone in the house. You will need to make sure it is up to standard before you have people move in, and any additions or renos you need to do to get it there wont be tax deductible. It didn't effect my FTB too much - TBH I don't really know how much it did as I don't get it fortnightly but as a lump sum at the end of the year, but I still got about $3000 which I thought was average in comparison to previous years. In order to keep everything easy to budget we made sure we rented a place for the same price as we rented ours and that way there was no "dead money" so to speak (as in money that doesn't go towards owning something), but we were in a different state and not looking to go in the same area, but it does work out cheaper to rent the house you own and then live in rental housing yourself (which is ridiculous), so the extra rent would work out over the year I think.

[Joeve]

Hello yes I did it in the past. Rented my place out as I was transfered interstate for work... so kind of same situation but different reasoning!
No the shortfall is not tax deductible on your rent, however the rent you received and your mortgage payments have tax implications - you are able to avoid capital gains tax for up to 5 years as the house you own is still your principle place of residence as long as you don't purchase another house. If you receive any family payments these may be effected as the rent you recieve for your house becomes income -regardless of the rent you personally pay out. If I was you I would defintely make an appointment with your accountant to work through the scenario

[~mamaspice~]

thanks guys Yes will definately have to get onto an accountant

[Ginger]

would you stay in the same suburb or move to a different area?

[~mamaspice~]

Hi Ginger, same suburb. We're pretty settled here