Here’s one to get people thinking… I was reading in a book this comment:
“You can’t use interest as a tax deduction on a property if you’ve already lived in the property yourself, unless you’re positive gearing.”
Erm… Any care to take a stab at why? And what difference does it make, if it’s +ve or -ve, whether you can claim a tax deduction??
[edit] Oh – and I also meant to ask… Doesn’t this cancel out advice I’ve read here several times – that is – to get the FHOG, buy your first property, live in it and claim the grant, then move out and rent it out as an IP. If what I’ve quoted from the book is true, that means you can’t do this! Or does it!?
Allan.
Hello
Well I would have to say I have never heard that before and it doesnt make alot of sense to me. Which doesnt mean its not true. What context and what book was that written in? There might be more mitigating circumstances. Look forward to hearing more on this.
Scott
“Together we combine our strenghts and eliminate our weakness”
Sorry to be stupidly obvious, but is it an Australian book? Ive spent ages trying to find out stuff before, only to find out the strategy/rule cant be replicated here. Worth a check, as it seems to be a contradiction…
cheers
timMoney is an elastic resource, it can be created. Time is not.
Sorry to be stupidly obvious, but is it an Australian book?Yes, it’s “Your Investment Property: How to choose it, pay for it and triple your returns in 3 years” by Anita Bell. On page 2! (Makes the rest of the book sound promising, hey?)
Allan.
It sounds incorrect to me.
You can claim the interest on a property if it is rented out and you have previously lived in it before. Whether it is positively geared of not is irrelevant.
I read the first book by that author, and she had little money saving ideas such as cleaning the rubber seals on firdges to cut electricity usage! Great stuff, should help you save 30c per year [
]Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hey, 10 years and that’s a cup of coffee!
I agree, you can rent out a property you have previously lived in and ‘gear’ it. Perhaps she was referring to the fact that you can’t claim deductions for interest if you’ve drawn on the mortgage for the place you’ve just moved out of (i.e. in order to buy new property)?
I agree, you can rent out a property you have previously lived in and ‘gear’ it. Perhaps she was referring to the fact that you can’t claim deductions for interest if you’ve drawn on the mortgage for the place you’ve just moved out of (i.e. in order to buy new property)?Here’s the first two pages, up to and a little beyond that point… The quote is in blue (I hope)!
—
Chapter 1:ARE YOU READY TO BUY, OR ARE YOU JUST A SITTING DUCK?
Your First Choice: A Property For You Or A Property For Your Wallet?
If you’ve never owned property before, you might be wondering if the first property you buy should be your own home or an investment property – perhaps to help fund the purchase of your own home later on. Many first-time property buyers get incredibly uptight trying to forecast which will be best for them financially – and the temptation of the First Home Owner Grant has made the choice even harder for some people. But the long-term financial outcome is only a small part of your decision. You’ll want to take convenience and lifestyle into consideration too. So while your decision may seen complicated, there’s really no need to break into a fretful sweat about it. Simply consider the following five main points.
1. You’re NOT entitled to the $7000 First Home Owner Grant for an investment property – even if you fit the full citizenship guidelines – unless you’re going to be living permanently in the property yourself within twelve months. Yes, you can rent a property out for the first eleven months before you move in, and you can use all your expenses during that time as a tax deduction. But to keep the Tax Office happy AND get and keep the $7000 grant, you would have to buy the property as your own home, rent it out for a short time only AND as an added precaution make sure that your income from the property during this time is higher than your deductions. (So you’re paying tax on a profit, not appearing to avoid it by making a loss.)
2. You can’t use interest as a tax deduction on a property if you’ve already lived in the property yourself. (Unless you’re positive gearing. But while you’re away on a long holiday if you would appreciate the extra cash, not to mention live-in housesitters to help keep the burglers at bay while you’re away.)
3. Only a portion of your expenses will be tax deductible if a portion of the property is used for private purposes. (If you live in part of it, for example.)
—
Me again: No matter how many times I read it, it still sounds wrong!
Allan.
Spawn
I think deductibility is determined by the purpose at the time of the deduction. Eg you could buy a property, live in it, move out and then claim interest and other costs indefinetly if the property remained a rental proeprty.
I think you are thinking about the 6 year rule, which means you can rent your PPOR for up to 6 years, without it being liable to CGT if sold within that period.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Allan,
Based on what an accountant told me, I think it must be a misprint, or the author is not clear in her writings. It should say something like:
2. You can’t use interest as a tax deduction if you are already living in the property yourself.It’s like people who have a holiday house and live in it for 4 weeks of the year, therefore don’t get expected market rent returns per annum, and claim the rent minus interest loss on the investment. The loss only occured because they chose not get rent (while they lived in it).
Check it out though as I’m not an expert.
I have heard this before although I have never check it with an accountant.
I understnad it has to do with the initial purpose of the loan, regardless of whether the use changes half way through.
I don’t know whether it is reciprocated for an ip becoming a ppor.
Josh
With inflation it might be twelve or thirteen years until that 30c is enough to buy a cup of coffee.
What are we talking here? flat white? latte??
itsamoorey
[|)]
Allan, did you get a receipt for the book.
You may want a refund!Heh – does the library do that now? [
]So… Which is it folks – PPOR turned into an IP – loan repayment interest tax deductible, or no? Anyone 100% on this??
Thanks for the replies so far, too…
Allan
Hmmm .. i have been battling with this subject myself . My mortgage dude who has a finance background tells me that all my loans are claimable as they are all low docs and HAVE to be for investment purposes ….. but my accountant has a different opinion and keeps telling me that my structure is wrong . I must admit i am a bit confused as to the whole PPOR v’s IP when it comes to the claimablity issue.I have just used my current PPOR to drawn down for the deposit and costs of my next PPOR. So the old PPOR (of 9 years) will become an IP . I have heard of people setting up a company to rent their PPOR off .
my 2 cents…..
as far as i was aware, if you have lived in a property and then decided to rent it out and move elsewhere, then you can claim any interest deductions on the property from the time it becomes and investment. depending on your strategy it could be a good thing (if there is still a lot owing) or if you own or have a low principal left on the loan, then the deductions (if any) aren’t going to be very substantial. if you then in the future sell the property, capital gains will be taxed on the percentage of time the property was an investment compared to PPOR
[
]It is my understanding that if you move out of your PPOR and rent it out, the loan is then completely tax deductible.
EXCEPT, where you have increased the borrowings to do other things. ie, the only part of the loan that is deductible, is that which actually was used to purchase the house (and maybe renos.). Definitely not the ‘debt consolidation’ or the overseas holiday.
Cheers
MelMy money is with Mel and Terry.
If the property is taxable income producing (pos or neg) then expenses are deductible.
I don’t agree that a LODOC is automatically deductible just because you sign the declaration – depends on the purpose of the borrowing.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
My money is with Mel and Terry.Thanks, Simon – now stop wasting time here, and answer your email! [
] (Just joking – when you get time…)Allan.
Just think of tax deductiblitly like this:
If an expense is incurred in a genuine attempt to make a profit, then that expense is, generally, claimable.
So if you rent your house out and are paying an expense in the form of interest, then you should be able to claim that expense..Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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