Ive done some DIY reno's on my IP (when it was PPOR) that were funded from a LOC. I'm trying to work out if the interest on the purchase's such as Tiles, Paver's, Kitchen etc is tax deductible?
That's a tricky one. The borrowings were initially personal in nature, and although I think you could argue that the purpose has now changed to investment - I think it would depend on what else you have used the LOC for. If there were any other borrowings which were not related to the property in question (or other investment purposes), then I think the LOC would be effectively contaminated (especially if there have been any payments back into the LOC since) - given that you can't effectively separate out the personal from the investment amounts. If the LOC had only ever been used to borrow for expenses on that property, I think you might get away with arguing that the purpose of those borrowings has changed along with the change in purpose of the property ? I'd have to leave it up to the experts to comment further (I am not a tax expert - this is just my personal thoughts!)
Now this post has got me thinking. If I make improvements to my PPoR which I ultimately intend to become an IP, is there some way I can claim at least some of those improvements as a deduction? I realise that it would be tricky, but if the intent right from the beginning is to make capital improvements in order to increase it's rental worth and I can claim something, better in my pocket than the tax man.
Given that the cost of capital improvements are typically depreciated over a number of years - as soon as the property becomes an IP, I would think that that you should be able to start claiming that year's depreciation - just make sure you keep receipts and a depreciation schedule for the interim period. Even though you can't claim the depreciation in the years it is still a PPOR - the depreciation schedule will tell you how much you can subsequently claim in future years. ... and get some advice to make sure it is legitimate!
Yes, I've been reading some of the tax guides from the ATO recently in anticipation of becoming a first-time IP owner, and some of it has been enlightening reading. For example, being able to claim depreciation on improvements made by the previous owner: while it would seem logical that you depreciate what is in the house when purchased, it would not have been obvious to me that you can make a 'best guess' on the cost of previous owner improvements and depreciate from there. (I realise that that may not be an entirely accurate summation as I've still got lots to read and absorb, but it certainly underlines the need to get a good accountant who knows all the finer ins and outs)
Hi Thudd Best person to speak to about this would be a quantity surveyor. Check out the major players in the state you need and let us know how you go.
The most effective (and safest) way to do this is to get a professional depreciation report done by a quantity surveyor. You can also get a qualified builder to give you estimates of costs for things like a kitchen renovation etc.
