Hi All,
I was wondering if its possible to claim interest as a deduction if I move out of my ppor and rent it out?
Not many people seem to know the answer and I’m a little confused by it.
Thanks[
]Generally no, as the purpose of the loan wasn’t for purchase of an income producing asset.
Rod.
what if you were to refinance ?
I think it would be deductible as the property is earning assessable income and your expense (i.e. interest) is incurred as a result of earning assessable income.
Not many people know the answer? This is an easy one. You are asking the wrong people. Speak with an accountant.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auYou’re best to talk to an accountant (I’m not one). But my impression is that as you are refinancing “personal” funds, not actually purchasing a new asset then it’s still not deductable.
One of the creative mortgage brokers on this forum may know a way around it though.
Rod.
I would have to agree with Stuart. The way I understand it, if you purchased a PPOR live in it for a while then later you decided to rent it out, you can claim the interest costs on the original mortgage amount. You cannot refinance and obtain more equity offsetting the interest on the additional debt beyond the original mortgage amount at the time of the change of intent (when you decided to rent it out). You would have to be careful about refinancing just before changing your intent. I dont think this would be allowed by the ATO either.
Thus you can claim the interest as an expense as it is in the pursuit of generating income. There may be certain specific facts about different circumstances that do change this so do check with your accountant as mentioned before.
Talk to your accountant.
Having just re-read Stuart’s and House’s comments I suspect that I could well be wrong on this one.
Logic says that if you have to stop claiming interest if you move into an IP and make it your PPOR then it should work the other way too. I just had the impression that you couldn’t.
Then again when have the tax laws been logical[?]
Rod.
Hi Ripp
I am actually going to do this myself and I have been told that you can claim interest and other property related costs. This is becuase the property will be income generating.
The downside of this is that you will have to pay capital gains on the proportion of the property when it was being rented out. Also, if you rent it out for more than six years, (I think), then you will have to pay capital gains as if it were just an IP, (ie. on 50% of the capital gain at your marginal tax rate).
I am no expert and not an accounant so, as everyone else has said, check with your accountant.
Cheers
EnuffIsEnuff
Im confused
You would have to pay capital gains tax if you were to sell it though wouldnt you ?
Capital gains tax is calculated on the relative time you held it as an IP. eg if it was your PPoR for 7 years, and then an IP for 3 years before you sold it, you would pay tax on 30% of the gain (further discounted by 50% because you held it longer than 12 months). This example comes straight out of the Tax Guide 2001.
J
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