Should I move into my IP? Have done the sums...

Hi All,

Keen to get some views on the below from the PC group.

Have two IP's will be buying a third 3-6 months,

Currrently I live in my parents granny flat with my fiancé (a very nice Granny flat, I've had it good so far) I pay $500 month/next to nothing basically.

I will be moving out in March 2017, need to live near work as my hours are getting longer and the travel is killing me.

Rent is budgeted to be $700-750 weekly for a 2 bedder 5kms out from the city. I want to live in a nice apartment, going down below $650 is not really within scope.

Heres the fun part:

IP1 cost to live in (exc maintenance)
IO loan = $1730 monthly
P&I loan = $2170 monthly
Strata = $390 monthly
Lost Tax deduction benefits = ~$460 monthly

It works out about $750 pw on a P&I loan structure and I am paying $5k off principal
or as IO loan or $725 pw on IO structure

Not sure if I've missed anything critical here, it almost looks net net equal with the benefit of paying off $5k against the property and potentially a year or two CGT break (partial main residential exemption?)

Anyone in the know able to shed some light why I would or would not want to do this???

Thanks in advance

 

If its a newish place then also factor in lost depreciation

 

I don't know about the sums but the CGT savings going forward could be worth much more. If it is worth $700k and grows 10% that is $70k per year.

Even if you live there temporarily you could use the 6 year rule to save a fair bit of CGT.

 

HI Terry, I am forecasting avg annual growth at 3.0% to be on the safe side

Property is worth $750k - are you saying that if I move in for a year i get the 6 year rule? I thought I had to move in there from purchase and then have the option to move out for a period of absence?

 

Hi Davem - the tax benefit loss counts that one in, I am positive on this one using IO loan, my depreciation is driving the tax benefit which I forego if I move into it.

 

You can still get the 6 year rule.

 

Thanks Terry, I'll take this through with my accountant.

Just for clarification, does that mean eg. if I were to sell after owning for 15 years my growth would be split over the 15 years and then I would have the equiv yearly figure taken off for 6 years.?

If I can get a 6 year exemption from CGT by moving in for a year it may be worthwhile

 

It won't be exempt totally as you didn't live in it from the beginning, but it will be worked out on a % lived in basis with the absence counting as if you were living in it.

 

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You can only use the 6 year exemption going forward. To gain the benefit you have to move in, then after you move out you can claim the CGT exemption for the next 6 years (if you don't claim another PPOR).

It is not retrospective. I,e., you can't move in, then sell, then claim 6 years exemption.
Marg

 

This 6 year rule seems to be a great exemption! - have been trying to read up about it.

So it looks like if I buy a property and move in straight away and live in it for a minimum of 6 months, then rent it out, I can get CGT exemption for up to 6 years?

Within that six months, if I went overseas for, say 3 months (but not rent it out leaving it empty), come back and then rent it out, would that still count towards my 6 months of PPOR?

 

There is no 6 month requirement. All that the law says is that it is your main residence before you become absent.