PPOR to IP for two years

[DCI]

Hi all,
We are looking at renting out our ppor for approx two years while house sitting for our parents rent free.
My question is can we now claim interest/depreciation etc on our ppor that has now been converted to an IP for this two year period.
As I understand it, we can rent it out for up to six years without CGT being applied providing it remains our ppor for that period.
But can we claim interest etc now for that duration:
Also are there any dangers in doing this.
Apart from crap tenants?
Thanks

 

[Propertunity]

We are looking at renting out our ppor for approx two years while house sitting for our parents rent free.

OK

My question is can we now claim interest/depreciation etc on our ppor that has now been converted to an IP for this two year period.

Yes

As I understand it, we can rent it out for up to six years without CGT being applied providing it remains our ppor for that period.

Yes

Also are there any dangers in doing this.

No

Apart from crap tenants?

Get Landlords Insurance which is also tax deductible

 

[LynnH]

Yes, you can claim the interest as a deduction after your PPOR becomes an IP, but there can be a little 'gotcha' there.

What sort of home loan do you have, DCI? If the loan is an 'all-in-one' type of loan and there has been personal expenditure and income deposited and withdrawn - e.g. your pay goes into the loan, your expenses are put on CC and you withdraw money to pay our your CC - then you will have a mixture of personal (non-deductible) and property-related (deductible) interest. If this is the case you will need to have your accountant apportion the interest.

If you simply make a payment (either P&I or IO) once a month into your home loan, then it is much simpler - all of the interest would be deductible.

May I suggest that you consult an accountant who may have suggestions (e.g. restructuring loans etc prior to turning the house into an IP) that could help you avoid any pitfalls.

Also, check out the BanTacs Accountants website - they have a free (downloadable) booklet on Rental Properties which covers several aspects of this subject:

www.bantacs.com.au/booklets/Rental_Properties_Booklet.pdf


What a great opportunity it is for you to be able to house-sit your parents house rent-free!

Cheers
LynnH

 

[DCI]

Thanks guys for the advise,
Also one other question: are we better of converting our loan to IO loan for the two year duration or should we just keep it as is, at Standard variable P&I loan to help reduce our mortgage, particullarly while rates are low?
My other question is: So when ever it comes to selling our home will the tax department look at the deductions claimed over that two year period and apply them to CGT payable for that period on any CG that is sighted to have added to our current property value over that two year duration?

 

[LynnH]

DCI

Also one other question: are we better of converting our loan to IO loan for the two year duration or should we just keep it as is, at Standard variable P&I loan to help reduce our mortgage, particullarly while rates are low?

It depends ..... one thing to consider is the costs involved. 2 years is a relatively short period and you would have to weigh up the costs vs any benefits you may obtain. IMHO, I would leave things as they are unless there is a substantial saving in doing so.

One of our MBs could probably provide much more insight on this question.

So when ever it comes to selling our home will the tax department look at the deductions claimed over that two year period and apply them to CGT payable for that period on any CG that is sighted to have added to our current property value over that two year duration?

There will be no CGT payable under the circumstances you describe (i.e. PPOR becomes IP for 2 years then reverts to being PPOR again, as long as you haven't claimed another property as your PPOR during that period).

Cheers
LynnH

 

[Propertunity]

are we better of converting our loan to IO loan for the two year duration or should we just keep it as is, at Standard variable P&I loan to help reduce our mortgage, particullarly while rates are low?

An investor-mindset would make the loan IO. A pay down your mortgage mindset would pay off principal. Which one are you?

So when ever it comes to selling our home will the tax department look at the deductions claimed over that two year period and apply them to CGT payable for that period on any CG that is sighted to have added to our current property value over that two year duration?

I think you'll find your PPOR is CGT-free for the 6 year period of which you are only doind 2 years. To be on the safe side get a valuation before it becomes and IP and then again after it becomes your PPOR again - just for your own records. It does not have to be a registered valuer - just get 2 - 3 REA appraisals.