Latest NewsTurning a Home into An Investment PropertyTuesday, 16 May 2017

In this increasingly mobile world we live in, more and more Australians are becoming property investors by changing their home or principal place of residence to an income-producing investment property.   A variety of circumstances will dictate when a home becomes an investment property - the owner may move interstate for work; travel for an extended period overseas; they may simply decide to purchase and occupy another property or it may be financially beneficial to rent out their home and rent somewhere else themselves.   Turning your principal place of residence into an income-producing property creates a different scenario at tax time - expenses such as interest costs, rates and management fees will become tax deductible, making owning the property more affordable. The rent also becomes assessable income.   Brad Beer, of tax depreciation quantity surveying firm BMT, suggests that another tax deduction available for the owner while the property is income-producing is depreciation on the fixtures and fittings and the capital allowance on the structure of the property - if it was built within qualifying dates.   "It is important to include any capital improvements that were made, even if they were completed while the property was a PPR", Mr Beer says.   "There are still potential claims for these items when the property becomes an investment." He cited the example of a client who purchased a property in 2006 and promptly decided to put in a new bathroom and kitchen.   "In 2008 he decided to travel and work overseas and rent his property out", Mr Beer said.   "He was surprised to find that the new kitchen appliances, cupboards, tiles and bathroom accessories substantially increased his yearly deduction for depreciation and building write-off."    Mr Beer noted that while a `principle place of residence' is exempt from Capital Gains Tax (CGT), this may change when a home becomes an investment property and is eventually sold.   "There are a number of scenarios which will reduce or create a total CGT exemption.   "It is important to discuss this with an accountant as each scenario is different depending on the property's first use, how long the property was lived in, how long it is income-producing and if the owner purchased another principal place of residence", he advises.

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