Writing off home loan interest
- Thread starter h8dk97
- Start date
h8dk97 said:
I'm sure Dale will clarify..
The 2 broad issues you need to be aware of are:
1. By writing off part of the interest you also lose part of your Capital Gains Tax exemption should you ever sell.
2. You can only write off part of the interest if your home business is truly a business and doesnt fall under the definition of a "non-commercial loss".
If you never intend to sell (or arent fussed about loss of part of your CGT exemption), and you're making a profit then I'd definitely write off part of the interest, rates, insurance, repairs, depreciation etc on the home. It will certainly help your Tax position in the short term.
h8dk97 said:
Dale will hopefully clarify.. here's my amateur understanding, demonstrated by way of example:
Year 2000 you buy a house for $100,000
You immediately open a small profitable home business which uses 25% of the floor space.. you claim all available deductions straight away.
Year 2004, you sell the house for $200,000
You have made a capital gain of $100,000. All of which is normally exempt. But you have used 25% of the property for income producing purposes therefore 25% of the capital gain is taxable.
With the $25,000 that is taxable because you have held the property for more than 12months you can discount it by 50%, so you have $12,500 worth of taxable capital gain. On the top marginal rate, around $6000 worth of tax.
You need to compare this $6000 worth of tax you MAY have to pay if you sell with the immediate deductions you received over the 4 years you owned the property..
So if you held it for 4 years, you probably paid around $24,000 in interest, of which 25% was deductible. So a deduction on your tax each year of around $2K, around a 1K saving each year for 4 yrs.. or $4K over the 4 yrs.. add on top 25% of your insurance bill, repairs, heating, cooling, depreication etc and you'd be very well ahead..
Very rubbery, rough figures.. talk with your Accountant
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Question for the masters apprentice - Duncan.
We have lived in our PPOR for the last 5 Years, with my partner running her design business out of third bedroom(converted to office with built in cupboards etc). The business pays rent, share of the rates etc.
We still owe about 100k.
What are the CGT implications if we turn the PPOR into an IP and return within 5 years and then sell our PPOR.
Having the business provide an income in early period make us liable for CGT?
Thanks in advance
We have lived in our PPOR for the last 5 Years, with my partner running her design business out of third bedroom(converted to office with built in cupboards etc). The business pays rent, share of the rates etc.
We still owe about 100k.
What are the CGT implications if we turn the PPOR into an IP and return within 5 years and then sell our PPOR.
Having the business provide an income in early period make us liable for CGT?
Thanks in advance
My accountant also used to say this a few years ago, but nowadays he says it doesnt really matter whether you have a separate entrance or not.Thommo said:
Apparently the main rule is to make sure you claim only the areas that are 100% office and nothing else (e.g. if your "waiting room" becomes your TV room at night then it's not claimable).
He says that claiming any potential multi-use "common areas" as a business expense is not allowed.
mmerlin said:
Hmm I am not that sure, and please these are only my thoughts so shoot if you must but do it gently.
If you are using part of your home for your business what ever that maybe and then you also use part of it for personal use. ie you have bookshelf in the room that you might access occasionally, or a TV that is in a room that is available for clients but used by your children at night etc, you get the idea, then of course it should be and is claimable, for starters you are using it for business purposes, the wear rate is higher than normal etc, you may not be able to claim the whole cost ie only 50% of your TV or the floor space of that office less the .25sq metre the bookcase occupies but claim it I think you should.
Norman
PS make sure you read my signature
Every computer can be used to play games & watch movies.
Does that disqualify studies as for 'sole purpose'?
We have to walk through our study to reach our bedroom....for not business reasons.
Does that disqualify it for sole purpose?
There are definitely some grey areas
Cheers,
Aceyducey
Does that disqualify studies as for 'sole purpose'?
We have to walk through our study to reach our bedroom....for not business reasons.
Does that disqualify it for sole purpose?
There are definitely some grey areas
Cheers,
Aceyducey
I am merely an interested bystander here because 100% of my bank charges/interest are already deductable.
So why don't I claim home office exes?
1/ Even in my modest sized home my office is well under 10% of total area.
2/ Depreciation keeps me well out of the top marginal rate.
3/ There is a bed in it. [ok, I know the ATO will not physically check this]
4/ Over 30yrs of being self employed I have never been audited. I lodge a conservative return, countersigned by respected professionals. So conservative that the boxes of beer I buy a few of my clients at xmas do not show. No lunches, no nuttin, but refer item 2/.
I recommend using "respected professionals".
T
I believe in staying below the radar!
So why don't I claim home office exes?
1/ Even in my modest sized home my office is well under 10% of total area.
2/ Depreciation keeps me well out of the top marginal rate.
3/ There is a bed in it. [ok, I know the ATO will not physically check this]
4/ Over 30yrs of being self employed I have never been audited. I lodge a conservative return, countersigned by respected professionals. So conservative that the boxes of beer I buy a few of my clients at xmas do not show. No lunches, no nuttin, but refer item 2/.
I recommend using "respected professionals".
T
I believe in staying below the radar!
Philby said:
Hi Philby,
Provided you don't have another PPOR in the time that you're living away from the house then your CGT position would remain unchanged from the time you moved out. There's some complex rules around this, its often referred to as the "6 year rule" I could dig up some ATO Site references if you wanted.
It's not clear if the "business" is another entity such as a Pty Ltd company or partnership.. if it is another entity and you've received income from it then you would need to declare this.
If you have deducted a portion of your Home Loan Interest (as a percentage of the floor space the business used) then that same percentage will be applied to your Capital Gain should you sell to determine the tax payable, but only for the number of years that you claimed the deductions. If you need a hand with that estimation, sing out.
I've been using a single bedroom in a 4 bedroom rented house as a home/office for a few years and my accountant has been claiming 12% of the rent and electricity bills and never had any problems with ATO (touch wood!). The room doesn't have a bed or TV etc and certainly looks like a sloppy office with desks, bookshelves and computers, and a lot of papers and books lying around in neatly disorganised piles. About the only non business things that happen in it are personal phone calls but who's going to know any different.
My accountant also has a 'keep under the radar' policy, so maybe the 12% is a good figure, works for me!
My accountant also has a 'keep under the radar' policy, so maybe the 12% is a good figure, works for me!
Don't ever reveal too much in a public forum!slades said:
Claiming a percentage of a rented premises is much better than claiming a percentage of a place you own. In rented premises, there's no CGT implications. (If it's the place you own, claiming a percentage can affect the PPOR exemption- ie, you will pay Capitaln Gains Tax on a portion of your house)
