Ok heres a question. You have a home that holds no emotional attachment. You move out and rent it out.( never to return as PPOR and want to keep and rent on a longterm capital growth plan)
When buying it the funds were borroed for the intention of PPOR, can this be changed now the purpose has?Then then buy IP, but move in temporarly to do reno, then sell. Whats this considered as???. Whats the legalities with CGT? and interest payments for tax purposes. Plus I have an IP ive had for 3 years, if I moved in before selling it, if there a timeframe?
Questions questions[biggrin]
I am not qualified to give advice, but I have some experience in this area.
I am in this situation at the moment. We have our PPoR in Australia rented out while we are in the U.S.A for 2.5 years. We never intended to use our house for this purpose when we bought it in 2000. There is no mortgage on it – only utilities, insurance, rates, maintenance and now management fees. We do have other I.P’s as well.But I asked my accountant what the status is on the house while we are away from the point of view of our house being used as an I.P, and he told me that as soon as the house is advertised for rent the property becomes an I.P and as such the outgoings are tax deductable. (yay!)
Like you, we don’t plan to move back into that house when we return. We intend to move back into the same neighborhood, but rent a cheaper house than ours. Thus we should be able to make a surplus on the rent. It is a purely non-emotional, financial decision.The I.P you move into to do the reno can be considered your PPoR if your original PPoR is being used as an I.P, as you have to live somewhere. Thus, your reno property would not incur cgt when you sell it. But you won’t be able to claim any costs from the reno as a tax deduction though – you can’t have your cake and eat it according to the A.T.O.
If you move into the I.P you have held for 3 years before selling it, the cgt is calculated on the time it was used as an I.P, up until you start to use it for your PPoR. Of course, all the tax deductions will end at this date as well.
Please consult your accountant for further advice on these matters.
Cheers,
Marc.
[email protected]Hello jaineyb
Like L.A. Aussie I am not qualified to give advise either but will give you my understanding of each of the situations you discribe. I’m sure someone will be awake enough to correct me if I am wrong.
I don’t actually think that you need to do anything as far as advising the bank that you are going to rent out your PPOR. I hope one of the savvy brokers on the site will correct me if I am wrong.
Of cause I would check my insurance policy and take out landlords insurance as well. If you then rent and not declare any other place as as your PPOR then you can rent for up to 6 years at a stretch and not be up for CGT tax if you sell. You can claim all normal expenses associated with an IP (interest,rates, insurance etc. etc).
Interestingly enough the ATO lets you start the 6 years count from scratch if you move into it again as your PPOR (I don’t know if there is a time requirement for that) and then move out again. There is a good explination of all of this on the ATO site.
I think it would be a good idea to get a valuation every time you switch the status of this house or at the end of the 6 year period or at the time you declare another property as your PPOR.
If you buy a property to renovate, move in and declare it as your PPOR then your first property will cease to have that status for CGT calculations when/if you sell.
All expenses (interest, renovation costs etc.) will not be tax deductible but you will not be up for CGT when you sell. I’m not sure how many times you could do this and in what time frame before the ATO decides that this is not a case of someone with itchy feet.
In the your last scenario, if you have had a property as an IP for 3 years and then move in to it and declare it as your PPOR (I would get a valuation at this point) when you sell, CGT will only apply for the period that it was an IP. As L.A Aussie has pointed out you would not be able to claim expenses for the period you live in it.
Actually, seeing as the expectation generally is for a pretty flat market there does not seem any point to this strategy at the moment. Even worse, if this property experienced negetive growth during the period you used it as your PPOR this would not be taken into account for the CGT calculation.
Also don’t forget the effect this would have on the property that is currently your PPOR (i.e. you would miss out on the chance to have 6 years CG for free)
I hope I have not confused you even more. [smiling]
Elka
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