Hi I am new here.
I bought a property a year ago and have been living there ever since but due to the high mortgage repayments I decided to rent out a room.
I heard from a friend that it is possible to declare the house on tax as an investment property and include the rent as an income, and the cost of repairing the home as a partial deduction. In that way, I am able to reduce my taxes since my cost of repairing is much higher than the rent that I get (it seriously cost a bomb)
I want to ask if this is actually possible, declaring a property as investment even when you are only renting out a room.
The second question relates to FHOG. I bought the place and have lived there a year, therefore I've been granted FHOG. So if I were to declare it as investment I am not eligible for FHOG. So do I declare it as investment after the 6month period, or can I still declare it as investment (partial) right from the period I bought it since I am also living in the house?
Any advice is greatly appreciated. Thanks!
You state you have lived in house for a year the FHOG states 6 months.
- You (or at least one applicant) must occupy the home as your/their principal place of residence for a continuous period of at least 6 months, commencing within 12 months of either settlement or completion of construction.
- The home must be used as your principal place of residence for a continuous period of at least 6 months. You must move into the home within 12 months of the date of settlement (in the case of an existing home), or the date construction is completed (in the case of a home built under a comprehensive building contract or as an owner builder).
this is from http://www.sro.vic.gov.au/sro/SROWebsite.nsf/rebates_fhog.htm#5
if your house is not in victoria do a search using fhog or look at point 6 in web site aboveDrawback to renting out one room and declaring income is that room is no longer subject to an exemption for capital gains tax.
Yes it is possible but the repairs will be apportioned to a part amount based on how much the room is a percentage of the house. Same with Council Rates, insurance and loan interest. Probably would be a good idea to confirm with a tax accountant.Also be careful with repairs as a repair which repairs the property to a state better than when you purchased a property is actually an improvement. A repair of a whole section is also an improvement. eg replacing the whole roof or replacing all the carpet. An improvement cannot be claimed in the tax year that the cost was incurred rather it is divided by the life of the improvement and part claimed over each year. This is called depreciation. If the cost is below a certain amount you may claim it all in that year , I can't remember the figure I think it is $600 but I am only guessing.
"Drawback to renting out one room and declaring income is that room is no longer subject to an exemption for capital gains tax."
Sorry, but could you briefly explain what is capital gains tax in this (house) scenario? I downloaded the ATO document but it states about shares, and not really on the housing section.
Hello Joyce
Here is a link to the ATO site that explains the situation regarding CGT if you rent out a room and declare it.
Here is a link to a publication on the ATO site which you can download which explains all about what you can claim for rental properties.
If you decide to go this route you should probably see an accountant.
Hope this helps
Elka
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