Making PPOR an IP

[In The Red]

As we are moving onto a new PPOR, I am currently considering whether we should keep our PPOR and make it an IP. I trust this has been done many times before although I have tried a few searches but cannot find where this has been discussed before.

Specifically, I would like to learn the following:

- how is the purchase price determined?
- is depreciation calculated in the same way or are there special allowances since the property was not previously owned for earning income?
- is the financial loss this property makes subject to the same tax advantages as a normal IP?

I am only starting to research this matter so if there is anything else which you think I should know or can point me in the direction of further information, it would be appreciated.

Thanks

 

[BayView]

We currently do this with our PPoR.

The purchase price (as of now) of your PPoR can be determined by a valuer if you need that.

All the depreciation is calculated the same way as an IP, from when you begin to use it as an IP. The age of the building will be a factor - needs to be built after 1987 for best results.

All the holding costs, loan interest, rates, management, repairs etc are claimable exactly the same as an IP.

Make sure you take out Landlord's Insurance, and talk to your insurance company/broker about the change to the "contents" part of your household, and get it reduced as you won't need too much - mainly building, public liability and landlord's.

 

[In The Red]

Thanks for the reply. So would the purchase price be determined by the valuation? And do you know if it complicates things that we own the house?

 

[BayView]

As far as I know; the valuer will simply value the house as of now.

I assume you are talking about the purchase price of your current PPoR if someone was to buy it now?

 

[BV]

You will need a valuation to prove to the ATO what the value of the house was at the time it became an IP. In x number of years when you sell you will use the figure (Sale price - Valuation) to calculate the CGtax.

If the place is paid off then there won't be any financial loss as the rent willl more than cover any expenses. If you have outstanding loan it will become tax deductible.
Other expenses, rates, maintenance etc are also tax deductible.

If the place is relatively new then you will also be able to claim depreciation.
It doesn't matter that it has been your PPOR, it will still depreciate.

Cheers

 

[Qlds007]

In ideal world you would look to increase the loan on your current PPOR to the current valuation and use the raised funds as a deposit on your new PPOR thus maximising the tax effectiveness of the property.

This can be done by selling the property into Trust and whilst will trigger additional stamp duty is certainly worth consideration depending on the numbers involved.