Claiming interest deduction during construction of rental property.

Hi,
I know this topic has been done to death but I can't seems to find the answer..

I need clarification:

1.)
Current rental property been rented out for a few years... Demolish it and build a new rental property.. Interest deduction during construction : YES.

2.)
This one I'm not very sure, Can someone confirm?
Current PPOR for last 10 years, Demolished it and build a new rental property... Interest deduction during construction??

Thanks

 

In either case the answer is 'it depends'.

Could be deductible in both though depending on the circumstances.

 

I believe the answer to 2. is more complex than 1. It would depend upon whether the loan was wholly for the acquisition etc costs for the former home. Assuming it was I see no issue however it isnt claimed in the rental property section of the taxpayers tax returns and only the interest for the period after the land is held for the purposes of the changed use. This may be the day after occupation ceases but may not be too.

The next inevitable question concerns the costbase for CGT. The valuation of the land is not relevant. But the loss and destruction of the former home isnt reflected either. But this doesnt matter. The historical land cost (incl the house which is now demolished) will remain its land costbase (and new costs added to this) and a future apportioning is required. The date it ceases to be the main residence is the key date.

Take care this property is not sold within 5-6 years. There could be unintended GST consequences. If that is a possibility a solid record of all costs may help that also calcs the GST on costs. And a proper land valuation will also help. The developer toolkit attached may assist and explains some of the issues

 

For point 2, existing PPOR has no loan. I will take a new loan to pay for the construction of the new property. Will this muddy the case?

Thanks

 

It may clear the water a bit!

 

Thanks for that.
As long as I have a clear cut loan to fund the building of the new Rental property. It should be fine?

 

i couldn't confirm that or not. It depends on the circumstances.