renting out while renting another

hi guys,

i've currently owned my apartment for 1 year and am thinking of renting it out so that i can rent a property closer to the my office.

my question is, what gotchas and maybe tax tips are there out there?

the rent i'll get for my property is less then the cost of the property, so i pay ontop per month to cover strata and repayment on loan.

plus ill pay rent for the new property i move into which is in a dearer area.
 
okay ive done a bit of research and here is what ive come up with:

* i can rent out my propertly and claim it as a PPOR since i lived in it for 1 year meaning ill be excempt from CGT if i move back within 6 years

* it's always a good idea to change loan from princible and interest (current) to interest only when the property becomes a PPOR. (not sure why yet.. still reading up on it)

However, what else can i do ? can i claim any of that interest as a tax deduction? can i claim any of the new rent as tax deduction?

anything else i left out?
 
Once you move out of your PPOR and turn it into an IP, then you can claim on the interest and other expenses related to that IP. I have looked into doing this, rent out our PPOR and move out to rent elsewhere. It is good in the sense that you reduce your liabilities and increase your tax deductability.

The only bad side to it is that you are living in a place that isn't yours!

I don't think you can claim any of the new rent, unless you were using it for business purposes, in which case it is then a percentage of the rent I believe.
 
okay ive done a bit of research and here is what ive come up with:

* i can rent out my propertly and claim it as a PPOR since i lived in it for 1 year meaning ill be excempt from CGT if i move back within 6 years

* it's always a good idea to change loan from princible and interest (current) to interest only when the property becomes a PPOR. (not sure why yet.. still reading up on it)

However, what else can i do ? can i claim any of that interest as a tax deduction? can i claim any of the new rent as tax deduction?

anything else i left out?

The benefit of changing to IO from P&I is that you increase your available cashflow, while maximising your tax benefits.

You can claim ALL of your interest (and other costs such as BC, insurance, PM fees, rates) as tax deductions, but you will need to claim the rent as income, not a deduction.
 
thank you for clearing that up, im curious, when you say IO allows me to claim, how much percent of those items can usually be claimed?

just wanted to estimate if i can afford this...

also im on the higher tax bracket for work, 40% bracket@100k, i was wondering if this can come into play at all?
 
Assuming that the property is "available to rent" for 100% of the time, then you can claim 100% of the costs. You can also claim depreciation, but bear in mind that when you sell the property under the PPOR CGT exemption, then any depreciation claimed will be added back.

So to use some rough numbers. Assumptions: Value $300k; rent 300pw; loan $250k; IO @ 6%; PAYG income of $100k pa

Income
Rent: $15,600 pa​

Outgoings
PM fees: $1926 (8.5% + 2 weeks letting fee)
Council Rates: $2000
Insurance: $1000
Maintenance: $2000
Loan Interest: $15,000
Total outgoings: $21,926
Shortfall: $6326 pa (21926 - 15600) or $122 pw

Tax position without property,
$100,000 - $25,450 = $74,550

Tax position with property
New taxable income is $100,000 - $6326 = $93,674
New tax payable is $20,253 (compared with $25,450)

Tax refund is $25,450 - $20,253 = $5,196 or $100 pw

This means that you'll be out of pocket $22 pw. And that's before depreciation which might be about $3000-$4000 pa, further reducing your taxable income.

Clear as mud? :p

If you want more details and to be able to enter your own numbers, check out this thread.
http://www.somersoft.com/forums/showthread.php?t=26452
 
hi, thank you very much for that very usefull information, it actually clearly defines the value of doing this (litrally).


my question remaining would be, how is depreciation decided? is there a set formula or varies per property?
 
A quantity surveyor can give yu a rough estimate and if you choose to go ahead, will provide you a report itemising all the depreciation.
 
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