PPOR to IP - tax deductions on interest ?

If you buy a house as your PPOR for 2 months, then move out and rent it out as an IP, can you claim the interest on the loan for the two months it was your PPOR as a tax deduction?

How about the initial loan costs like LMI and loan fees ?

 

NO because it was private use.

 

A straight forward No.

 

The loan costs are typically deductible over 60months...So 58/60ths may be deductible for the loan costs. 2/60ths non-deductible.

The issue of whether the property meets the CGT main residence exemption (and thus is eligible then for the 6 year absence rule) may not be as simple as indicated. If you plan to move out before moving in the main residence test may not ever have been satisfied. The key requirement is that when you occupy that it is intended to be your main residence. If it is planned to be a mere brief occupancy prior to renting it out thats blatantly not meeting that intention.

 

One of the problems with the proposed move out is that the costbase will reset. s118-192 will impose the market value on the date it is first used to produce rent. Typically the actual historical cost of the property will be higher than the market value for duty, legals and other CGT costs. The value of those costs may be lost in this proposed change of use. s118--192 isnt optional

 

Thanks all for your advice

 

Pauli@PFI - with the cost base reset on moving out & turning a PPOR into an IP, can you also use the 6 month exemption when moving into a new PPOR?
Ie If moved out in April and had cost base obtained at that time, can you also claim
6 month crossover period and use value in October as cost base or does that only apply if the original PPOR is sold?
In Melbourne SE so even the last 4 months the original PPOR (now IP) has continued to rise significantly.
Thanks

 

Only applies if selling

 

Thanks Terry

 

As Terry say - Only if you are selling it AND it actually sells within 6 months. In that case the former home is exempt and the (up to) 6 months overlap on the new home is disregarded for practical purposes.

Otherwise the CGT profit must be calculated pro-rata. The market value at the date you move out is only applicable if you keep it AND you commence to rent it out (s118-192) this also requires it has ALWAYS been your home and nothing else. If you dont meet the tests in s118-192 pro-rata CGT applies based on costs ect rather than market value at the date its first rented. That said...In many cases the selling costs add to the market value and its common no CGT gain is made.

 

Thanks Paul, property purchased & reno'd as genuine PPOR for approx 7 months from date of purchase until available for rent.
Obtained two realistic written valuations (with comps) from REA's at time of initial renting (April) to use as CGT cost base.
As value has continued to increase further since renting out, I was just thinking if it was possible to use the 6 month crossover of PPOR as well to help bump up the cost base for future record purposes.
A CGT gain would be made after all costs but no plans to sell atm.
Thanks for your assistance!

 

After the renos were completed how long were you in the home as your main residence ?