PPOR to IP interest deductions

[mojoman]

Just about to start a cosmetic reno on PPOR and will move out while the work gets completed and then rent it out. Given that I still owe $200k on it and reno costs should be $30-$35k I am a bit confused where this leaves me tax wise. My understanding is as follows:

1. The Reno costs are generally capital in nature and are not immedietly deductable but can be depreciated.
2. The original $200k loan interest repayments become tax deductable once the property is available for rent? From when the renos are finished I imagine??
3. I intend to refinance the $200k loan to fund the renos from equity within the property. Interest on the money used for the renos should be tax deductable as well??
4. Should also be able get some increased depreciation from fittings/fixtures that are replaced or taken out that still have effective life left???

Does this sound right. Any help would be appreciated.

regards
mojoman

 

[yo yo ma]

2. The original $200k loan interest repayments become tax deductable once the property is available for rent? From when the renos are finished I imagine??

Correct when you say "available for rent". See p 10 of Rental Properties 2007 by the ATO about interest on loans.

3. I intend to refinance the $200k loan to fund the renos from equity within the property. Interest on the money used for the renos should be tax deductable as well??

The interest on the reno's will not be tax deductable, as the ATO (same link) states that "while the property is rented, or available for rent, you may also claim interest for renovations, for repair..."

You will be able to claim depreciation... Have a Quantity Surveyor do a report, that will easily pay for itself.
Steve

 

[yo yo ma]

The interest on the reno's will not be tax deductable, as the ATO (same link) states that "while the property is rented, or available for rent, you may also claim interest for renovations, for repair..."

This may be wrong, so check with your accountant; directly below this, the ATO contadict themselves with:

Similarly, if you take out a loan to purchase land on which to build a rental property or to finance renovations to a property you intend to rent out, the interest on the loan will be deductible from the time you took the loan out.

Steve

 

[coopranos]

Check out Steele's case, no reason interest on a loan for a reno on a rental property shouldnt be deductible from the time the loan is taken out, as long as the intention is to rent the property out in the near future.

 

[Deve]

Hi

Just to follow up on this..

I'm looking at converting my PPOR into an IP sometime before the end of June. I also want to complete some repairs and repaint areas.

What is the best way to do this? Are the costs of these repairs deductible if I perform them now, stay in the property myself and then rent out the property in June? Or is my only option to wait until I move out, perform the repairs then, and then let it?

My preference would be to complete the repairs / paint now - if possible.

Cheers
Steve

 

[coopranos]

The costs of the repairs/painting arent going to be deductible anyway, whether you rent it out first or not. It is deductible if you are restoring it to it's original condition, so whatever condition it is in when you rent it out is its original condition.
So if your tenant moves in for a year and leaves scuff marks all over the walls, or is there for 5 years and the paint fades, then you can deduct the costs to bring it back to original condition.
Anything over & above this is an improvement, and probably should be capitalised. Whether anyone has ever capitalised a diy paint job or not is another matter.

 

[geoffw]

HiI'm looking at converting my PPOR into an IP sometime before the end of June. I also want to complete some repairs and repaint areas.

What is the best way to do this? Are the costs of these repairs deductible if I perform them now, stay in the property myself and then rent out the property in June? Or is my only option to wait until I move out, perform the repairs then, and then let it?

Don't just look into the deductions. Look at what you can achieve from it.

You will probably be able to get a much improved rent from improving the premises.

But you can only get a (in this financial year) deduction for alterations which will bring the property back into the condition that it was when you made it available to rent.

Improvements can be depreciated.

Talk to an expert. There's a few in the forum.