Hey Ozb community,
I have an existing PPR and have purchased my first investment property and was wondering if there are any suggestions on the below;
If I intend to sell the property in 2 years time, will it benefit if I move in for the first 6 months?
I was advised to get a valuation done so when selling, the price in the valuation report is considered and not the purchase price for taxation purpose?
thank you. I already have a PPR and this is my first investment, therefore the questions. The real estate agent (leasing) confused me by saying I should move into the property for 6 months and then lease it out to save on tax.
The real estate agent (leasing) confused me by saying I should move into the property for 6 months and then lease it out to save on tax.
Might as well be giving health and legal advice too. God that sh!ts me how people talk out of school.
haha. do you know if there is a source of truth when it comes to such questions wrt investments?
@Jaff: No there isn't; you can only have one PPR at a time, so this doesn't help. There are various exemptions for cross overs, time away from a property etc, however ultimately, you can only have one PPR, and hence only one property that the PPR exemption from capital gains tax applies to at any point in time
If u move in for 6 months, your existing place ceases to be your ppor
That would have been good advice if you didn't have a PPR as you could sell it tax free within 6 years of turning into IP… since you already have a PPR his advice is incorrect
if OP hadn't paid extra off their mortgage on prop A and only a minimal deposit, and held funds in offset, they can move into prop B move over offset $ and then negative gear prop A
they can save on stamp duty and leaves them the option to treat either prop A or propr B as their ppor during the time they own both at same time for upo to 6 years.
Get a depreciation schedule done
Pretty sure these are the questions (as well as many others) you get answered before you purchase your investment property.
The answers depend on if you already own another property that you have lived in.
sorry, just updated. I do have a PPR.
Donate $500 to your local Liberal MP and let him know you don't want to see new housing supply erode your investment property value.
Works just as well with Labor! Plus you get a free origin story about Albo's mum!
will it benefit if I move in for the first 6 months?
You can only have one PPOR, so moving in to one, means the other one becomes a IP.
incorrect afaik.
OP can still keep their current ppor (A) as their ppor if they chose to do so for up to 6 years.
if (A) doubles in price in 12 months of living in prop (B) they can claim current PPOR as their PPOR and get the cgt free
if (B) triples in price they can sell prop (B) cgt free. or sell both and still chose prop (B) cgt free, but will ever pay prorated cgt in prop A
Sure, as long as they don't produce income from either, or buy it with the intend to 'flip' it… Oh whoops… on both of them.
https://www.ato.gov.au/Individuals/Capital-gains-tax/Property-and-capital-gains-tax/Your-main-residence-(home)/Eligibility-for-main-residence-exemption/
https://www.ato.gov.au/individuals/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-(home)/treating-former-home-as-main-residence/
@Donaldhump: Did you read your own link?
Eligibility
You can't treat any other property as your main residence (except for up to 6 months if you are moving house).
So back to my first comment…. You can only have one PPOR, so moving in to one, means the other one becomes a IP.
@JimmyF: I understand the rules.
I am telling you this comment you made is incorrect if you meant the first property can no longer the PPOR (maybe you are not)
"so moving in to one, means the other one becomes a IP."
i guess I am just saying OP could still treat prop A as their PPOR if they desired.
an IP can still be your PPOR
my method
buy shit hole 600k live in.
next year buy pimp palace 1.2 mill or so, move in for 1 year, move out for 6, rent out, nega gear the f*** out of it, move back to shit hole, repeat.
all whilst moving offset money back and forth
my method
buy shit hole 600k live in.
next year buy pimp palace 1.2 mill or so, move in for 1 year, move out for 6, rent out, nega gear the f*** out of it, move back to shit hole, repeat.
As long as the shit hole is never rented out, then sure, that could work.
But in the OP case, that doesn't seem to be an option and they will need to 'rent' out the IP to cover the loans, so the kills your 'method'.
@JimmyF: why can't i rent out the shithole ?
I am keeping nice place cgt free and I can do that using 6 year rule (afaik). shithole is irrelevant
@Donaldhump: Thought you understood the rules!?
https://www.ato.gov.au/Individuals/Capital-gains-tax/Property-and-capital-gains-tax/Your-main-residence-(home)/Eligibility-for-main-residence-exemption/
has not been used to produce income – that is, you have not run a business from it, rented it out or 'flipped' it (bought it to renovate and sell at a profit)
If you rent out the shit hole at any point of ownership, then it 'fails' this test, so CGT apply for a period of time.
@JimmyF: 1.) the shithole i am not wanting to be cgt free.
2,) but if i did, i can apply the 6 year rule to it. I can thus rent it out for up to 6 years and keep it as cgt free if i wish. I use this method for the 1.2 mill place, i rent it out for 6 years after living in it and it is cgt free (if i chose). hence why i move back in every 6 years to reset the clock.
1.) the shithole i am not wanting to be cgt free.
LOL but you claimed otherwise "i guess I am just saying OP could still treat prop A as their PPOR if they desired."
2,) but if i did, i can apply the 6 year rule to it. I can thus rent it out for up to 6 years and keep it as cgt free if i wish
You can only have one PPOR CGT Free, not two. Its not rocket science. The first P in PPOR should give it all away.
@JimmyF: i know you can only have one cgt free on any given day, never said you could have 2. please point out where I said you could
on a given day is what you maybe missing. you have the potential as in my example to have both of your properties as your ppor eligible at a given time, but you make the decision that suits you $ wise on the day you trigger a cgt even, i.e sell it, which one of the two you will claim as your ppor, automatically barring you from claiming the other one.
you are saying my method doesnt work if i rent out the shithole, but it can.
Anyone can rent out any property they once lived in and keep it cgt free for up to 6 years. You are saying I can't
2010 buy 600k property (A) live 1 year
2011 buy 1.2m property (B) live one year, rent out (A)
2012 move back to (A), rent out (B)
2016 sell (B) for 1.7m it is cgt free (should I chose, at this point I decide whether A or B is to be cgt free from 2011-2016)
for 2011-2016 i can not claim cgt free for prop A, not do i care because I am not selling it, and even if did it mathematically will more than likely make less profit.
so you saying I cant rent out prop B and claim cgt free on it is wrong.
i could buy a property today live 1 year, rent it out, goto poland and live and then sell 5 years later cgt free. of course you can rent it out thats what the 6 year rule says you can do
here is ATO example
Example: ending the period covered by the choice early
James:
bought a house in Brisbane on 15 September 2012 and moved in immediately
moved to Perth on 10 October 2014 and rented out his Brisbane house
bought and moved into a new house in Perth on 3 October 2019
sold the house in Brisbane on 1 March 2022.
When he completed his 2021–22 tax return, James decided to treat the Brisbane house as his main residence for the period after he moved out in October 2014 until he purchased his new main residence in Perth in October 2019. This is a period of less than 6 years. This means James is entitled to claim a partial main residence exemption under the '6-year rule'.
As James decided not to treat the Brisbane house as his main residence after he bought the Perth house, he is subject to CGT for that period. This means James must include a capital gain or loss in the period not covered by the main residence exemption in his 2022 tax return (from October 2019 until March 2022).
what I am saying is not rocket science, if you disagree that is fine, but go ask an accountant their thoughts.
i know you can only have one cgt free on any given day, never said you could have 2. please point out where I said you could
You're entire reply from the start was to argue against saying you can't have more than one PPOR aka CGT free place.
what I am saying is not rocket science, if you disagree that is fine, but go ask an accountant their thoughts.
In your example, James only had one CGT Free aka PPOR property at any one time. James didn't own a 2nd property in Perth until Oct 2019, and then when James took ownership of the Perth place, the Brisbane PPOR was converted to a IP.
Not sure how you think this example supports your claim?
Anyone can rent out any property they once lived in and keep it cgt free for up to 6 years
They certainly can, as long as they don't make another place their PPOR for tax purposes. You're only allowed one PPOR at any time.Which is the bit you seem to be missing.
so you saying I cant rent out prop B and claim cgt free on it is wrong.
You can only when you don't make any other property your PPOR for tax purposes. But that isn't what is happening now is it.
i could buy a property today live 1 year, rent it out, goto poland and live and then sell 5 years later cgt free. of course you can rent it out thats what the 6 year rule says you can do
Yes you can, but this is a different example isn't it?
If I intend to sell the property in 2 years time, will it benefit if I move in for the first 6 months?
In this environment, unless it's a prestige property or similar, you won't have to worry about tax on capital gains after transaction costs, because there won't be any in 2 years.
I think real estate has said by moving in for 6 months then going back to your current ppor(A) it means you have option to sell (B) cgt free for up to 6 years.
on any given day of your life you can only have one ppor. by moving into (B) and then back to (A) it gives you 6 years or so to decide which to use as your ppor.
you may also save on stamp duty, but then have the ballache of moving.
thanks, that is what I believe the agent said. But will my existing ppor (A) not have any tax issues in the future when I move back to A and sell (B) within six years?
for every day u chose ur prop B to be cgt free, your prop A can not
example
2018 you bought prop A , move in
2023 you bough prop B, move in one year
2024 move back to prop A
2026 you sell prop B for ??
2029 you sell prop A for ??
2 choices when sell prop B
1.)
B is cgt free
A is not cgt free from 2024-2026, so you pay cgt on 3/11ths of 50% of it as owned > 1 year
2.)
B is not cgt free , pay cgt on 50% of it as owned > 1 year
A is cgt free.
One surefire way to save on tax that works everytime is to simply earn less money.
As recommended by Joe Hockey?
1 - why moving in? First home buyers grant? Depending on the purchase most cases I’ve seen the negative gearing outweighs this benefit.
2 - that’s only if it’s your PPR first. You can obtain a market appraisal at the time you move out and it becomes an investment. Logic there is had you sold it at the time you moved out it would have been tax free. Section 118-192 of ITAA97