Yet another PPOR - IP Question

[poyner]

Setting out on the IP adventure

Hi all,

In about 6 weeks time, we will be moving out of our PPOR and it will become an IP. Is there anything special we need to do with respect to our loans for the interest to become tax deductible? At what point does the interest become tax deductible? I assume it's the day we move out and the house becomes 'available for rent'. If we don't do anything to our current loans then we just claim a proportion of the next interest payment and every other payment after that?

If we decide to refinance the loans, are we better off doing it after we vacate the building? Will it mean that some of the refinancing costs will be tax deductible?

 

[wylie]

Can't help with your questions, sorry, but my first thought is to make sure you have a valuation done to help apportion any capital gains tax when you sell, possibly years away.

Wylie

 

[poyner]

Thanks for your tip wylie.... Is there any sort of timeframe when this needs to be done? how much does a valuation generally cost?

Does anyone else have any thoughts on my first questions?

Also, we have recently bought our first IP (settles in 27 days) and we're looking at our loan structure etc. With two IPs and no PPOR what would everyone recommend as the best structure? Is an offset account required/useful in this situation? Also, I assume capitalising LMI in to an IP loan is fine? ie. the interest on this portion of the loan is still tax deductible, I vaguely recall reading somewhere that loan setup costs (maybe including LMI) are non-deductible?

Sorry about the million questions, I've been reading/searching somersoft for days/weeks now and feel like I'm going around in circles and doing my head in. I figured it might be easier to just ask.

Thanks again.

 

[BayView]

Hi Poyner,
we are currently in your situation, minus the mortgage - we own our house luckily. We are renting our PPoR while here in the USA, but will probably continue to rent it indefinitely when we return to Aus next May, and rent a place ourselves as we can make a cash surplus by renting.
All the expenses/outgoings are tax deductible from the time it is available for rent.
You don't need to change anything; just keep separate records and receipts of all the outgoings for the property so your accountant can work out your tax return, all bank statements and rent statements (I assume you are using a Property manager?).
If you are going to do this long term you may want to restructure your loan to one with an offset account, have all you rent paid into your personal account if you have one (like an offset account) and this will help you reduce the loan. Speak to a Mortgage Broker or accountant with property investing knowledge about this.
Make sure you take out Landlord's insurance and if the house was built after 1987 get a Depreciation Schedule done to help with the tax returns. The L.I will cost around $200 per year, the D.S will cost around $500. Both are tax deductible and the D.S will pay for itself in the first tax return I can assure you.
You can rent out your house for up to 6 years before becoming liable for CGT.

 

[poyner]

G'day marc,

Thanks for your thoughts. It sounds like your situation is actually quite similar to ours. The reason we're moving out of our PPOR is that we're moving to the UK for 12 months. When we get back we'll be living in Melbourne (instead of Brisbane) so it will continue to remain as an IP.

So in the space of a month we're going from a single PPOR to two IPs. I've been trying to work out the best loan structure (and interest rate) on both of the properties at the same time. There just seems to be so many variables. setup costs/ongoing costs/prof loans/break fees/LMIs/offsets/split loans/not to mention interest rates.

I'm trying to make sure that we don't end up with the cross collaterised (our current lender NAB have certainly been trying).

The current structure on our PPOR is 3 NAB loans and an offset with about $35k in it. 2 of them are defence loans and the third is a topup. I'm seeing an accountant on Monday but I want to make sure I go in with the right questions.

 

[wylie]

Regarding the valuation.... if Poyner is overseas for one year and back in Australia for say another five years and decides at that point to purchase a new PPOR, would THAT be the time to have a valuation done on the house that has been his PPOR for the six years? So no need to have one done now?

And also, do you have to move away from your town for this rule to work? Eg. if we rented a house here in Brisbane and rented our own PPOR house, could we do that for six years and then move back in and not pay capital gains?

Wylie

 

[poyner]

Regarding the valuation.... if Poyner is overseas for one year and back in Australia for say another five years and decides at that point to purchase a new PPOR, would THAT be the time to have a valuation done on the house that has been his PPOR for the six years? So no need to have one done now?

I was also thinking about this today. ie. Is there any benefit in getting the valuation done now or should I wait until I want to sell it (if ever)? Can valuations be backdated?

 

[alexlee]

I was also thinking about this today. ie. Is there any benefit in getting the valuation done now or should I wait until I want to sell it (if ever)? Can valuations be backdated?

Put it this way, Poyner. If you're unclear on this, why not do a valuation at each major event (you move out, you move back in, etc)? It isn't going to cost much, and it gives you peace of mind (or at least something to give to your accountant who knows the rules on this). When you want to sell it's too late because the value will be whatever you sell it for. What you need is something to show the ATO to support your estimate of what it USED to be worth. I doubt any valuer would backdate valuations.
Alex

 

[poyner]

Put it this way, Poyner. If you're unclear on this, why not do a valuation at each major event (you move out, you move back in, etc)? It isn't going to cost much, and it gives you peace of mind (or at least something to give to your accountant who knows the rules on this). When you want to sell it's too late because the value will be whatever you sell it for. What you need is something to show the ATO to support your estimate of what it USED to be worth. I doubt any valuer would backdate valuations.
Alex

Fair point alex.... Thanks very much for the input. Wasn't so much worried about the expense as just making sure that it was actually required. I was unsure whether valuers would be able to backdate, I believe depreciation schedules can be backdated if required so I was a little unsure. I assume we need to wait until we vacate the premises to get the valuation fee as tax deductible?