How would tax deductions on renos/fhog elegibility be affected from the following situation:
Settlement 01 July 2011
Complete reno 31 Aug 2011
Rent to tenant till say 31 May 2011
Move in for 6 months before 01 July 2012?
Cheers
This is a tax question and you should seek advice from an accountant.
From my experience in the past, with the FHOG you have to live in it for 6 months after settlement. When a renovation is done while a person is living in their principle place of residence it isn’t tax related because their principle place of residence is CGT tax exempt.
If a person decided to renovate their IP, this is considered a capital cost. Most renovations (maintenance excluded) are considered to add to the cost of your purchase, thus reducing the capital gain and consequently CGT.
Getting CGT reductions shouldn’t matter too much because when you live in a property for a period of time and it is still your PPOR, after you leave, you are exempt from CGT (as long as you always had the intention of moving back there.)
Will also depend in which State the property is in.
Take Qld for example you would loose the Stamp Duty concession in the scenario you have outlined.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
You really need to ask you accountant in order to get the correct answer. I will give you what I think is right, but I am not an accountant so dont take my word for it!!!
- FHOG- From memory I believe you have to live in the house for a minimum 6 month period commencing within 12 months of settlement. So if you settle on the 1st of July and then move in beofre the 1st of July the following year, you would fulfill the conditions of the FHOG. This does vary from state to state though, this is for a NSW grant.
- CGT- You will not be able to claim the 1st 12 months as CGT exemption under this scenario as it does not become your PPOR untill you move in. So if you rent it out for the 12 months as you have indicated you want to do, then live in the property for 6 months and then choose to sell, you will be liable for capital gains on 66% of the profit (after making allowance for the 50% CGT reduction due to holding it for 12 months or more). Again, check with your accountant.
- Depreciation on the Renovation- If you classify this as capital works, you will be able to depreciate this as per you accountants or QS advice. You will be able to do this as long as it is a rental property. Even if you did the renovation when it is your PPOR, you would still be able to depreciate the works once it reverted to an IP (even if you were still classifying it as your PPOR under the absence rule in order to minimise CGT).
Check with your accountant though, this is just my understanding of the rules.
Cheers,
Luke
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