advice on strategy

I have an IP which I would like to do major renovations to, and is coming up for vacancy. It is a 2 bedroom unit.

I have 2 ideas in mind of how to go about this:

1. Leave vacant for approximately 1 month to get renovation done. This would then come into account when I sell place in future and pay CGT.
   
   
2. Rent it short term (1-2 months) to friend/family member who is willing to let renovations occur around them. I would rent for say $50 per week, so during this time would be highly negatively geared, and renovations would be tax deductible.
   

Any advice on this situation would be appreciated. Place is currently rented 310pw, and with renovation would easily fetch 360-380+. And re-sale value would increase significantly.

 

Renovation deductibility doesn't work like that I'm afraid.

 

Really, so it really is only maintenance items.

what if 'tenant' says "I want new kitchen, bathroom, flooring and paint job"

 

Those items are depreciated, not deducted

 

Unless the work is a repair and attributable to a single event or damage by tenants, and is not an improvement, then its capital in nature and will be depreciated.

 

Thanks... so going forward, which option do you recommend, or do I kind of do both?

I suppose to rephrase my ideas...

1. Leave vacant, do reno, deduct over time
2. have tenanted, do work, have highly negatively geared for period (better than vacancy I assume). Then also deduct over time

 

I think it really depends on the scope of work you want to do - those things you've mentioned so far would be quite disruptive to someone living there. Could you imagine living somewhere the the kitchen being ripped out? Or not being able to leave your bedroom because all the flooring is freshly laid?

Best bet would be to get it all done as quickly as you can while it's vacant. The sooner you can do it, the sooner you can find a new tenant who's willing to pay more for a nicely done property.

 

If the property was previously income producing and you are renovating it to allow it to be incoming producing still, then you can generally claim a deduction for interest expenses during the renovation period. Given itsa a 2br unit it shouldnt take more than 2 weeks or so to renovate it?

 

Thanks Dave and D.T

I think i'll just try to get the reno's done quick like 'the block' or 'house rules'

 

What do you mean by 1?

With 2 you would be renting it under market value and may not be able to claim full costs. Depends if $50 could be market rate during a reno.

It might be better to just claim it vacant.

 

Number 1 is the logical method, do reno in time of vacancy and then advertise better product. Only downside to this is I lose time for the reno, and then re-advertising.


My logic behind number 2 is that say interest is only deductable during times of occupancy… or have I missed the mark here?

 

Interest is deductible during times of vacancy too if your end goal is renting the property out.

 

Thanks Terry.

So just a different scenario, which I could foresee in future. If I buy a place, give it a reno, then rent it out... will I be able to deduct the interest for that initial time during the reno and my messing around?

 

Organise your timings and leave it vacant during that time is the easiest way. When you are about 7-10 days away from finishing, have your PM commence marketing the property.

 

Just been through this exercise.
Get the tenant out, if its a major reno as mentioned, its not a good idea for a tenant to be living in the property while this is happening, not to mention any accidents that may occur. You will have more issues than worrying about rental income.

Time it correctly, as soon as completed, take photos, organise marketing and move on. You will save yourself time and money this way

MTR

 

I'd reno the house while it's vacant. The dust involved in a reno isn't good for a tenant to live in and trying to preserve their belongings will make it harder than it needs to be.

 

A Good question, I read it somewhere on ATO site that you can not claim for that part as repair. But you sure can claim it as capital cost. Any tax expert to clarify ?

 

Make sure you have everything approved with the BC etc . Hate to get everything vacant , builders move in and then an other owner says ' do you have approval for that '.....

Might vary state to state and block to block . In the place we just sold in Mosman , one owner took over a year to get everything approved ..... But it was company title which is more tricky and she kept on wanting things that the other owners ( including me ) thought were unreasonable .

Cliff

 

Same principles as
Tax Tip 38: Interest on Construction of an investment property https://propertychat.com.au/communi...-construction-of-an-investment-property.3890/

 

I think there are 2 issues
1. Interest on any loans for the items purchased
2. Claiming the costs of the items themselves - could be a straight up deduction or could be depreciated over several years depending on the item and what is done.