Swapping FHOG to IP furnished, tax question

[Fraser]

Hi there,

I have currently bought my first property, it's primary purpose is for investment although I have decided to utilise the FHOG to save me on expenses.

The property will settle in about a month from now and I'm planning to move in for 6 months with a couple of friends to fulfil the FHOG period.

After this initial period I will be swapping the house over to investment and renting it out.

I'm looking to buy all new furniture and furnish the house myself - I will also be leaving everything when the house is leased.

My question is,

If I'm to buy for e.g. 20k worth of furniture now, and utilise it in my PPOR for 6 months, am I only eligible to claim depreciation on everything for the rest of the financial year post this 6 month PPOR period? (which will carry through from July to Jan)

Also how does this work for making a 20k loss at the end of the year?
am I able to offset the full amount against my taxable income for the year
Even though I bought it during my PPOR period as it's primary purpose is for the tenant?

I am looking to get a depreciation schedule done as soon as I've furnished the place with new items to allow for maximum gain. Obviously this is going to be 6 months prior to the house deriving any sort of income. Is this a good idea?

Any advice would be greatly appreciated

Thanks,


Fraser

 

[wylie]

I cannot answer the question you are asking, but I do wonder if you are better using minimal and/or old furniture for six months and renting the place empty. Is it a house or a unit in an area where the demand is there for fully furnished rentals?

Generally, if it is a house in a normal suburban setting, people will be bringing their own furniture.

Furnishing it could cut down your rental pool substantially.

 

[Paul@PFI]

If you buy $20k of furnishings the following are issues:

1. If you buy when you reside then the first 6 mths depreciation is non-deductible. When its an IP its deductible.
2. Items that cost =<$400 are immediate deductible. Since you reside there there is non-deduction and all the benefit is lost as private expenditure. It would be smarter to defer these items until you move out.
3. Borrowing $ to buy depreciable items. Interest is deductible. ie first six months no. Thereafter yes,.

Smart to take photos after you move out showing it furnished. Two reasons - Proof of items for RE agent and tenant reports + tax enquiries. You wouldnt be first person to claim private assets on a rental!!

A depreciation schedule when you move in recommended. You will need to identifty the items that are remain in property v's private. They may assume its all your property otherwise. Receipts will help. QS will apportion the six months for the tax year and accuracy will be ensured.(1 July - 31Dec seems improbable)

In the period of IP any tax loss offsets other income (ie salary) and a larger refund likely. In six months I doubt a $20K loss. Your cashflows would destroy you if that was a accurate number.

 

[Fraser]

If you buy $20k of furnishings the following are issues:

1. If you buy when you reside then the first 6 mths depreciation is non-deductible. When its an IP its deductible.
2. Items that cost =<$400 are immediate deductible. Since you reside there there is non-deduction and all the benefit is lost as private expenditure. It would be smarter to defer these items until you move out.
3. Borrowing $ to buy depreciable items. Interest is deductible. ie first six months no. Thereafter yes,.

Smart to take photos after you move out showing it furnished. Two reasons - Proof of items for RE agent and tenant reports + tax enquiries. You wouldnt be first person to claim private assets on a rental!!

A depreciation schedule when you move in recommended. You will need to identifty the items that are remain in property v's private. They may assume its all your property otherwise. Receipts will help. QS will apportion the six months for the tax year and accuracy will be ensured.(1 July - 31Dec seems improbable)

In the period of IP any tax loss offsets other income (ie salary) and a larger refund likely. In six months I doubt a $20K loss. Your cashflows would destroy you if that was a accurate number.

Hi Paul,

Thanks for the reply, Much appreciated information.

So if I was to spend 20K on furnishings during the PPOR period, and leave everything as is once tenanted with everything I bought - I am able to claim a 20k loss from furnishing to offset my active income salary come June 30?

or is Furnishings classed in a different way i.e capital expense?

I'm interested in doing it this way as i'm grossing around 250k currently and my tax rebate of 45% is leading me towards buying new furniture with receipts rather than older stuff.

My cashflows otherwise are looking pretty stable.

Thanks again,

Fraser

 

[speary]

The furnishings will be a capital expense (if greater than $300) and will need to be depreciated, rather than claiming the $20k upfront. As Wylie mentioned you should also consider the demand in the area for furnished properties. It may not be worth furnishing the property is it will reduce your target market. Talk to the real estate agents in your area for this one.

 

[Paul@PFI]

Hi Paul,

Thanks for the reply, Much appreciated information.

So if I was to spend 20K on furnishings during the PPOR period, and leave everything as is once tenanted with everything I bought - I am able to claim a 20k loss from furnishing to offset my active income salary come June 30?

No.

or is Furnishings classed in a different way i.e capital expense? Yes - Over 5-10 years as a rough estimate.

I'm interested in doing it this way as i'm grossing around 250k currently and my tax rebate of 45% is leading me towards buying new furniture with receipts rather than older stuff.

If there is no upfront deduction it may make more sense to rent something with quality. As long as its insured. The rents are deductible outright and may assist higher rent. Is your IP high or low end ? ebay furniture v's rented quality fine for a 1 bedder in Parramatta but a three bed apt in double bay isnt likely to work.

My cashflows otherwise are looking pretty stable.

Thanks again,

Fraser

See my comments above