Tips on deductions for renting out PPOR?

Discussion in 'Accounting & Tax' started by pez30, 6th Aug, 2009.

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  1. pez30

    pez30 New Member

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    Gold coast, Qld
    I read a similar post about renting out a PPOR, but could not quite apply it to my situation.
    I took out a loan of $280,000 for my first property just over 2 years ago and lived in it for 1.5 years.
    I have been renting it out since January (and have since been living in another house which I do not own) this year and have made approx $15,000 in extra payments on the loan since it has been rented out (and approximately $30,000 extra repayments during the time it was my PPOR) as a redraw facility is available with the loan.
    I think I am correct in assuming that the interest paid on the loan since Jan this year is tax deductable?
    However is there any way that part of the initial fees of the loan paid in 2007 are part deductable (considering the deductions on these are calculated over 5 years). Also, are there any deductions on the extra repayments made this year and if so, is there any way I can claim deductions on the extra 30,000 paid on the loan prior to renting out my PPOR?
     
    pez30, 6th Aug, 2009
    #1
  2. Simon Hampel

    Simon Hampel Founder Staff Member

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    Interest paid on the loan from the time that it became available for rent is generally deductible (however, if you have used the redraw facility at all since you got the loan - it may be more complicated and will require an accountant's advice).

    I'm not sure about depreciated loan costs - it would make sense that they become deductible for the years it is rented out. Perhaps one of our resident accountants could offer their thoughts?

    As for payments already made - there is never any deduction available for principal payments off a loan, so you can not claim anything for the extra 30,000 you've already paid or anything you've paid this year, regardless of when it was paid.

    I suggest you go get yourself some tax advice at this point - if you continue to may payments on the loan, you will reduce the amount of interest you pay and the amount you can claim. This is not necessarily a bad thing (paying less interest is always a good thing), however if you plan to redraw some of the money you've paid in at some point for personal purposes (eg a new PPOR) - you will not be able to claim any extra interest on the increased loan ... and you will effectively contaminate the "investment" loan which may well see the ATO allow you to claim even less than you would otherwise have been able to - it gets complex!
     
    Simon Hampel, 8th Aug, 2009
    #2
  3. Superman__

    Superman__ Well-Known Member

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    Gold Coast, QLD
    Borrowing costs associated with mortgages for investment properties are often forgotten, but can lead to some worthwhile deductions once you calculated it out over the 5 year period (daily basis).

    Attached is some info from CCH including an example.

    A half decent tax accountant should be able to cover their fees and more through finding other deductions for your rental. A good example is a depreciation and capital allowance schedule - you pay $300 to $500 (fully tax deductible of course) to obtain thousands in tax deductions per annum with no further cash outlay - the first 5 years is especially great!

    Yeah - I know there will be some armchair experts sitting reading this saying "if you do that you will end up paying more CGT in the future as you are reducing your cost base for CGT purposes" however, I would rather have the deduction now in today's dollars and don't really care about some future increased gain (that will be discounted 50% in the future anyway if I hold the property for more than 12 months).

    Also some good bedtime reading is the ATO booklets regarding what you can claim for your rental property - gives you some great ideas for things you have probably forgotten.
     

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    Superman__, 17th Aug, 2009
    #3