Hi All.
I was speaking to my account about claiming a renovation loan on an investment property as an investment expense but what they told me is that to do so I have to lease the property first as purchsed then renovate. If I buy a vacant property and immediately renovate to lease than it's not claimable. Does anyone have experience in this area?
Think of the condition of the house when you buy it as the starting point. Work to bring a property back up to the starting point is a repair, work to improve the property beyond the starting point is an improvement. So even if its run down when you buy it, you're not repairing it, you're improving it. A repair cost is immediately tax deductible, an improvement cost needs to be depreciated.
Now when you talk about claiming the loan as an investment expense, I'd have thought the interest would be deductible, but I suspect you're talking about deducting the the actual principle?
Hi Bjsaust.
Thank you very much for your reply. Yes my main concern is the interest on loan, I am familiar with the repair and renovation deductions on immediate and depreciation.
Here's the thing, with CBA if I were to borrow $50,000 for renovations that works out to a bit over an extra $300 per month, therefore $3,000+ at the end of the year. My initial plan was to buy vacant, renovate and lease but now what my accountant's saying is you can't claim either depreciation or renovation loan interest unless it's tenanted prior to improvement.
I currently own a one bedroom apartment for a little over a year and I bought that as a FHB so it was my PPOR for 10 months. I renovated it immediately after purchase for about $15,000 and leased it newly renovated and furnished with $5,000 worth of furniture. I understand that I can't claim depreciation on the $20,000 of furniture and reno's because I did all of that as the occupier but I'm not liking what my account said because it holds you back from renovating for at least 3 months. I'll ask around get a second opinion
Well that's two different things. You're talking about living there while you renovate?
No I mean I want to buy a vacant unit and renovate it with borrowed money, then lease it and claim the interest.
Hmm, in that case I suspect your accountant is confused, maybe like me he's confused your past with your plans. The renovation is a capital expense incurred as an investment. If you borrow money for it, the interest should be deductible.
Yeah that's exactly what I reckon. What the hell is this about having to lease it prior to vacating tenants and renovating, I am definitly getting a second thought.
I think you should be able to claim the interest on money borrowed to do the renos, but only from the point when the property is available for rent.
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
Hi Terryw.
So lets say you buy a unit vacant, take a loan and renovate for 3 months then put it up on the market then you can claim back only from when you put it up for lease?The ATO generally insists that the property must be available for rent – such as being advertised. If you were in the business of renovating units then you could possible claim the expenses during this period, but if the unit hasn't been rented before and you only have 1 then probably not. A way around this may be to start advertising while doing it at a highish rate and see what happens.
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
Get a new accountant!!! Pronto!!!
You CAN claim depreciation AND the interest on the money borrowed for the reno FROM the date it's available for lease.
Thanks guys. Yeah that is a major bitch. So the real dodge thing to do is put it up for lease unrenovated for an overly inflated amount for lets say 2 weeks, then take the loan, start reno's and take it off the market?
If you take it off the market then you probably couldn’t claim interest costs during this period
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
I wouldn't even take it off the market. Just market it for the price you eventually want to lease for and leave it up.
Thanks for the tips. One last thing, say you buy it tenanted and apply for the loan during tenancy then vacate the property and do reno's. What you guys think of that.
You are really worrying too much about nothing.
Say the loan is $30,000. If you borrow the money and you renovate for 2 months you are not able to claim $350.
So you are missing out on $105.$30K X 7% = $21000pa. so 2 months interest = $350. So assuming 30% tax rate = $105.
Chillax!!!! Change your name. You are becoming a self fulfilling prophecy.
Catalyst you are mighty awesome. Thanks for your help money like that is really not worth worrying about in this grand scheme of things.
And I happen to be a massive fan of Doctor Doom from Marvel Comics however now that you've pointed it out I'm beginning to think it's not suitable for this website.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
