Get a valuation when turn PPOR into IP?

[Bandita]

Hi all,

I think this has been discussed before, but can't find the threads.

When you turn your PPOR into an IP relatively quickly- is it wise to get a valuation for CGT purposes?

Our situation is, using the FHOG, we purchased a property in South Melbourne in June 05 for 285k. It was rented out at 325pw until December. We moved in and did some minor cosmetics (changed hideous colour scheme, removed ugly gold tassles, bordering tiles, etc) and will now be renting it out for $370pw. Our plan is long term buy and hold - but obviously things can go wrong and there's always the chance some tragedy would cause us to have to sell in the future. I know it's been just over a year, but I believe we bought the place below market value and as our rental yield is so high, and similar properties in the area are advertised around the 350k mark, was wondering if there is an point in getting a valuation done as it was a PPOR for 7 months?

So, since we bought for 285k, say it has gone up in value over the past year and in 7 years we had to sell - I imagine we would have to pay CGT on the 285k value if we didn't get a valuation. But if we did, and say it's worth 325k now - would we only have to pay CGT on the 325k value?

Like I said, don't ever plan on selling - but want to protect ourselves just in case.

Sorry if that's confusing

Cheers,
Jen

 

[DaleGG]

Hi Jen

Normally, Yes, you should get a valuation done when you turn your PPOR into an IP.

However, because you did not live in the home from day 1, you can save yourself the time, trouble and cost as the original cost is what is used for CGT purposes.

Sorry, I am not sure if this is good news or bad.....

Have fun

Dale

Hi all,

I think this has been discussed before, but can't find the threads.

When you turn your PPOR into an IP relatively quickly- is it wise to get a valuation for CGT purposes?

Our situation is, using the FHOG, we purchased a property in South Melbourne in June 05 for 285k. It was rented out at 325pw until December. We moved in and did some minor cosmetics (changed hideous colour scheme, removed ugly gold tassles, bordering tiles, etc) and will now be renting it out for $370pw. Our plan is long term buy and hold - but obviously things can go wrong and there's always the chance some tragedy would cause us to have to sell in the future. I know it's been just over a year, but I believe we bought the place below market value and as our rental yield is so high, and similar properties in the area are advertised around the 350k mark, was wondering if there is an point in getting a valuation done as it was a PPOR for 7 months?

So, since we bought for 285k, say it has gone up in value over the past year and in 7 years we had to sell - I imagine we would have to pay CGT on the 285k value if we didn't get a valuation. But if we did, and say it's worth 325k now - would we only have to pay CGT on the 325k value?

Like I said, don't ever plan on selling - but want to protect ourselves just in case.

Sorry if that's confusing

Cheers,
Jen

 

[Bandita]

Thanks! One less thing to organise!

Cheers,
Jen

 

[landlubber]

spanner in the wheel ...

I think that was bad news Dale. .....surely to limit possible CGT exposure it would be prudent to obtain a current valuation (legit of course) that reflected the highest possible 'change over' figure ??

yes ? no ?

LL

 

[DaleGG]

HI

No. The property will be exempt for part of the time, but, based on actual costs to buy and sell and nothing to do with valuations.
Sorry.

Dale

I think that was bad news Dale. .....surely to limit possible CGT exposure it would be prudent to obtain a current valuation (legit of course) that reflected the highest possible 'change over' figure ??

yes ? no ?

LL

 

[tropic]

I thought the CG will be prorata not based on year to year increase during your ownership as PPOR and IP?
If you purchased a PPOR last year and this year it go up say 100k, then you rent the place out the following year while the IP drop 100K in value, can you claim a capital lost of 100K?

 

[DaleGG]

Hi

There are actually two different rules when it comes to the PPOR and CGT.

The first is if you live in the home from day 1. Them the valuation of the home is important on the day when you move out. Accordingly, if you sold after 12 months the CG would be based on the sale price less the valuation at the time when the house first became an IP.

The 2nd is when it is an IP first and then becomes a PPOR. This involves the original cost and the exemption is based on time used as a PPOR as against an IP.

So, CG would be based on sale price less purchase price and then pro rated for the time used as an IP.

Dale

I thought the CG will be prorata not based on year to year increase during your ownership as PPOR and IP?
If you purchased a PPOR last year and this year it go up say 100k, then you rent the place out the following year while the IP drop 100K in value, can you claim a capital lost of 100K?

 

[Indifference]

Thanks Dale! That answers my question which I didn't even need to ask....

I am Case 2: IP becomes PPOR with imminent sale on the horizon.

Thanks

 

[just do it]

Ip To Ppor

HI Dale,

I was told a valuation on moving into a IP which now becomes a PPOR has some relevance on CGT. Is that definitely not correct. eg the valuation is not relevant in the CGT calculation.

Thanks in advance

JDI