"Buy IP, move in, Sell as Home"

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From: Anonymous


I buy an investment property, how long before I can move in myself and use it as my own home without returning the deductions I made to the taxman? Surely I can't buy one day and move in the next day. Having said this I have rented an IP for 5 years, I want to move in and make it my home. How long before I can sell it as my home and pay no CGT?
Could I do the following:-
Buy an IP, have my postal address as my parents or friends house, have a PO Box.
"Renovate" the IP, and have a bed, TV, Fridge etc there (you know for those late night renovations) after 12 months rent it out after buying another IP. After 20 years move back into IP number one. Live there prior to selling the "IP".
Is this possible and worthwhile?
Scott
 
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Reply: 1
From: Sergey Golovin


Scott,

It is quiet few questions there -

I buy an investment property, how long before I can move in myself and use it as my own home without returning the deductions I made to the taxman? Surely I can't buy one day and move in the next day. – If it is belongs to you, do whatever you like with it. You can move back in at any time convenient to you, after tenants left the premises. Probably have to change Investment Loan to Owner Occupy, and do not receive any further deductions, as you would’ve otherwise with an IP.

Having said this I have rented an IP for 5 years, I want to move in and make it my home. – Did you rented your own IP or someone else’s? If you rented someone else's property (from someone) for 5 years to live in, well, you have lost those money. Cut your loses and move on.
If it is your own property and you rented out to someone else and ready to move in, no one going to stop you doing so. And you can do it any time you like.

How long before I can sell it as my home and pay no CGT? – Any property (own house) can be sold and do not attract CGT within first 6 years of you moving out. It is still called your home. This is only will work if you have that loan changed to owner occupy. If the loan is still the same - Investment Loan you have to pay CGT.

Lets put it this way - If you want to buy it as an IP, renovate it and rented out to someone else, you certainly can do all that, for as longer as you like. You will receive all tax deductions associated with it. Some of them (tax deductions) you will receive very same financial year and some are during next few years (for as long as you are going to keep it as an IP).

As soon as you have moved in, it becomes your place of residence and if you want to, you can change that loan to owner occupy and receive no further deductions from tax office.

Once you have finished with it and ready to move on (sell it) you do not have to pay CGT during first 6 years after you have vacated that place.

I guess you have to be clear on two thing here (well, at least for your self) - if it is an IP you will get all tax deductions and have to pay CGT on or shortly after the sale.
If it is Owner Occupy - it is no tax deductions and no CGT if you sell it immediately or within 6 years. If you are going keep it for longer then that you have to pay CGT.
Same with loans – if it is Investment Loan you will receive all deductions and if it is Owner Occupy you will receive no deductions.

Can you swap them let say from IP to Owner Occupy and back again? Certainly, as many time as you like. Probably it will cost you money. But who is going to stop. Your accountant and tax office will hate you for the massive amount of paperwork, but so what. You do whatever suits you. If you have to do it – you have to do it.

I hope I have answered you question. Please let us know if you need more info.


Regards
Serge G.
 
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Reply: 1.1
From: Scott Marshall


I find it very hard to believe that I can buy an IP, use some of the costs of buying as a deduction, change the loan to OO and move in. I had an OO and rang the bank and said I was now renting it out and there was no paperwork or costs involved. (5 years ago C.B.A.) But the saving is not great here, but the saving could be THOUSANDS of dollars if I moved into an IP, changed the loan to an OO, then sold it. esp after many many years. I am sure there must be a time limit of a few years of residency to do that. If not, well, no-one would sell an IP, but would just do a few bits of paper shuffling and not pay CGT. Must be that you have to live there for 2 years to not pay CGT, otherwise this is one big loophole.
I like the 6 years one, think I will do that when we next move.
Thanks
Scott
 
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"Re: Buy IP, move in, Sell as Home"

Reply: 1.1.1
From: Terry Avery


My understanding of the CGT laws are as follows:

If you buy a house and live in it and then move out you have up to six years
to sell without paying CGT.

If you buy an IP and rent it out then live in it the CGT is calculated on
the proportion of time it was rented out. For example, rent for 5 years,
live in it for 10 years and sell then CGT is payable on 33 % of the profit.
Discount that by 50% then you pay CGT on 16.5% of the profit.

I have lived in my own home, rented it and moved back in. There was no need
to tell the bank my circumstances had changed as the interest rates remained
the same. You don't have to change the loans for the ATO just be able to
prove when you moved in and out. Start and stop of power, gas and telephone
should do the trick. You do keep records don't you?

Of course if you never sell you don't have to prove much!
 
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"Re: Buy IP, move in, Sell as Home"

Reply: 1.1.1.1
From: Paul H


Another variation; but would be interesting to know the following.

What if you use part of your home as a home-office??. Can you still use the
primary-residence clause and therefore avoid any CGT??

What about buying a home; living in it for a month; then move out; renting
it to my company; then moving back in as a person in a few years; would that
also comply??

Looking forward to some creative variations and possibilities.

Paul H.

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"Re: Buy IP, move in, Sell as Home"

Reply: 1.1.1.1.1
From: Terry Avery


If you use part of your home as an office then you have to pay CGT on that
part of the home when you sell.

Yes, if you buy a home, live in it for a month and then move out and rent it
to your company you retain the exemption for up to six years. However if you
live in it while the company rents it then you may run into problems with
the ATO, such as they might disallow the rent expense to the company. You
really need to talk to an accountant to get around this one.
 
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Reply: 2
From: Dale Gatherum-Goss


Hi

If you EVER use the property for rental purposes, Capital gains Tax will apply when you eventually sell that property.

In a nutshell (and keeping this simple for now) The taxable gain will apply on the basis of profit on sale x time rented x time owned.

Sorry. I hope that this helps though.

Dale
 
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Reply: 2.1
From: Paul Zagoridis


Thanks to Dale for that timely reply. It's a warning that a little knowledge is a dangerous thing.

Also the "6 years" everybody is talking about needs clarifying.

You can only have one primary residence as a time. No double dipping allowed. Get good advice before claiming it.

Dreamspinner
 
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