interest in advance for IP but moving in after six months

[cocka2]

Hi guys,
we are in or process of purchasing an owner occupied property but for the first six months we want to rent it,as an investment property to recover some of the initial costs through the taxes. and then after six months we move in. I am thinking of getting fixed rate for two years interest only and paying all interest in advance this financial year while the property is considered investment. and deduct it from my taxes this year so when we move in for sometime we don't need to pay any interest to the bank. I would like to know if this is legal from accounting prospective and whether it actually doable? Has anyone done this before?

We are thinking to have it as PPoR for around five years, before converting it back to IP and moving to a large place. We are not thinking of selling this property for the next 10 or so years. Before Selling, we want to move in for a year to have it as our primary residence and then sell it.

Thanks

 

[HD_ACE]

Doubt it.
How long will it be your ppor for? Renting it out first will impact yor cgt.

Cheers

 

[BMan]

if your planning on living in it for a while i wouldnt rent it out first
you would lose your CGT free befefit if it being a PPOR

 

[cocka2]

We are thinking to have it as PPoR for around five years, before converting it back to IP and moving to a large place. We are not thinking of selling this property for the next 10 or so years. Before Selling, we want to move in for a year to have it as our primary residence and then sell it.

 

[wylie]

We are thinking to have it as PPoR for around five years, before converting it back to IP and moving to a large place. We are not thinking of selling this property for the next 10 or so years. Before Selling, we want to move in for a year to have it as our primary residence and then sell it.

If you rent it out first before moving in, you will be paying some capital gains tax when you sell, proportionate to the time it was a rental house and the time it was your PPOR.

If you move straight in for a while and then move out and rent it, depending on whether you buy another PPOR, you can utilise the six year rule.

I've never done this, learned this all here on SS, but you cannot just move into it before you sell and think you will not have to pay capital gains tax if it was bought and rented first up. If you want to sell without paying tax on the gain, definitely don't rent it as soon as you settle. Move into it first.

Make sure you know what you are doing, and know the rules or you will be caught out.

 

[Nemo30]

But on the other side, in the ACT you can claim stamp duty as a deduction if it is rented first. If its initially your PPOR you cant claim that.

 

[cocka2]

Thanks guys for your reply.

Could you please let me know if there is any CGT benefit between the following two options?

1) Renting the house outright and moving in for a few years (2-3 years) before changing it back to IP and having it rented for like 10 years. So we can use it for negative gearing. While we own and live in a new PPoR.

2) Moving in and after 6 months renting it out for like 10 years

Thanks

 

[marg4000]

Just check with an accountant that it is OK to claim 2 years interest when the property is only being rented for 6 months.
Marg

 

[wylie]

Just check with an accountant that it is OK to claim 2 years interest when the property is only being rented for 6 months.
Marg

If the poster does this and is found out (and I'm sure you will be found out) you will be in trouble with the ATO.

 

[streetie]

If you rent it out first before moving in, you will be paying some capital gains tax when you sell, proportionate to the time it was a rental house and the time it was your PPOR.

If you move straight in for a while and then move out and rent it, depending on whether you buy another PPOR, you can utilise the six year rule.

I've never done this, learned this all here on SS, but you cannot just move into it before you sell and think you will not have to pay capital gains tax if it was bought and rented first up. If you want to sell without paying tax on the gain, definitely don't rent it as soon as you settle. Move into it first.

Make sure you know what you are doing, and know the rules or you will be caught out.

This is not good news for me, I didn't know this. The place I bought in 2011 was using my first home owners grant and I didn't even get the option of moving in as there was a tennant and lease in place when I bought it, So I wasn't able to move in till that lease expired 9 months later.
Do the same rules still apply to a situation like mine?

 

[wylie]

This is not good news for me, I didn't know this. The place I bought in 2011 was using my first home owners grant and I didn't even get the option of moving in as there was a tennant and lease in place when I bought it, So I wasn't able to move in till that lease expired 9 months later.
Do the same rules still apply to a situation like mine?

I believe so. Our son couldn't move into his house until tenants left, about three weeks after settlement. That meant it was an IP first. It will not matter to him as he lived there for a more than a year and it is now an IP. But had he wanted to live there for a long time, he would always have had to apportion the time it was an IP and pay tax on that portion. That wouldn't matter as it was such a short time, but if he wanted to live there and then maybe move somewhere else and utilise the six year rule, he couldn't have done so as it was never his PPOR first.

At least that is my understanding of it. I'm happy to be corrected on this point.

AND... definitely get expert advice as I could be wrong and so half the people who answer this, trying to be halpful. I'm not an accountant or tax expert and learnt all this from this site.

 

[BMan]

I believe so. Our son couldn't move into his house until tenants left, about three weeks after settlement. That meant it was an IP first. It will not matter to him as he lived there for a more than a year and it is now an IP. But had he wanted to live there for a long time, he would always have had to apportion the time it was an IP and pay tax on that portion. That wouldn't matter as it was such a short time, but if he wanted to live there and then maybe move somewhere else and utilise the six year rule, he couldn't have done so as it was never his PPOR first.

At least that is my understanding of it. I'm happy to be corrected on this point.

AND... definitely get expert advice as I could be wrong and so half the people who answer this, trying to be halpful. I'm not an accountant or tax expert and learnt all this from this site.

correct me if im wrong but i think you mixing CGT with the 6 year rule

the 6 year rule doesn't matter if it was rented first, as long as it was made your PPOR and is your only PPOR at the time of using the 6 year rule, the only downside is you would have to proportionate the CGT for the time it was rented out prior to living in it and making it your PPOR
if you lived in it first you wouldn't have to do anything with CGT and could get a valuation at the end of the 6 years rule when used and your CGT would be based from that figure

 

[wylie]

I don't know if I am wrong, but I always thought that if a house was bought as an IP first up, you could not move in and then move out for the six year rule, but a truly have no idea.

I do believe that our son's house, thought he bought it as a PPOR would always have a tiny proportion of the time he lived there that he would have to pay capital gains tax on. If wasn't really an issue as it was such a short time, but I'm unsure about if he could ever move back in and then move back out for six years. I'd be curious to know.

What I do know is that a few years ago I had a bright idea to move from our tiny block into an IP on a much bigger block that we had held for about ten years, do a major renovation on it whilst living there, and then sell for a nice profit to put into something else.

I was disappointed to learn that, say we moved in for two years whilst doing this major renovation, whatever profit from purchase to eventual sale would be split proportionately as per the time we held it as IP and PPOR, eg two twelfths PPOR and ten twelfths IP. It meant whatever money we spent on it doing it up we would lose a huge lot in capital gains tax. (I've read that over twice and still not sure I've got that right .)

I wasn't prepared to live through another major renovation and hand a huge chunk of the gain to the tax man (especially having lived through the pain of a major renovation).