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Renting out rooms in your PPOR

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  • Keithw
    replied
    "I'm guessing that boarders get meals supplied and flatmates do not."

    thats my understanding too.
    there is a post here somewhere in the recent month or 2 about boarders. Something to the effect of the additional services provided, above pure supply of a room, needs to meet a certain % of the value of the rent.

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  • brendan
    replied
    Originally posted by Keithw View Post
    "If the property is owned in his own name and his rental expenses are larger than his rental income, can he claim the loss against his salary income."
    In principle yes, but what is criticial is the percentage used to allocate rental expenses, as opposed to expenses he would have as his private residence.
    IRD tend to look at everything as private expense unless he can show it is required for tenants.
    eg SKY in the common area.
    IRD most likely say he wants sky for his personal use, so unless he can show that he got extra rent because he supplies sky, or that sky is only availble to the tenants & not him, then the best he can get is a proportion of the sky bill, & the worst is he can claim no expense at all because he would have had it personally anyway.
    That sounds reasonable. He has freeview anyway, so no sky bill. But for similar things like internet, plan is all 4 contribute 1/4 of the bill, will be treated as a "personal expense", not a rental expense.

    Plan is to only treat the following 4 items mentioned in the IR246 section "Expenses you can deduct from your rental income"
    • Rates and Insurance
    • Interest
    • Repairs and maintenance
    • Depreciation


    Also, plan is to move out of this house in a couple years and keep it as a rental, so shouldn't be hit with a change-of-use depreciation claw back payment that would be required if depreciation was claimed and he had it as his own house.

    Originally posted by Keithw View Post
    "If the house has a floor area of 150m2 and his room is 15m2 and the rest of the house is either bedrooms rented by flatmates or common use area, does that mean that the "area of the rented out part" is 90%?"

    Unfortunately not that high. He also has to use part of the common areas -Kitchen, Bathroom, Garage etc
    So either don't incude the common areas in the total area calc & just work out the bedroom areas, thus assuming everyone shares equally the common areas,
    or more correctly
    add up all the sqm of the common areas & add 1/4 of that to his 15sqm bedroom plus any other areas only he uses, eg garage, office etc
    so at a guess I would say each of the other bedrooms 15sqm =45
    plus his 15 = 60 sq
    therefore common areas must be 90 sq
    (adjust this depending on the size of the bedrooms and according to whether he also has other exclusive areas such as garage)
    1/4 of 90 = 22.5
    so his area is 15+22.5
    =37.5 of 150
    thus he should be able claim 3/4 of any obvious tenancy related expenses in the property (which is intuitively correct as there are 4 tenants sharing the place equally)
    That makes sense. His bedroom is the only exclusive area that he will have, and everyone will share the common areas equally. So the % will be ([Floor area of all exclusive areas] - [Floor area of his exclusive area]) / [Floor area of all exclusive areas]

    Do you know if the IRD have a document describing this formula, so that I can show him the "official" rule.

    Also, IRD246 has different formulas for "boarders" vs "flatmates", but doesn't define the terms. Any idea where I can find definitions for IRD terms (They don't answer their phone at this time of year, they just hang up on me after I enter my IRD number). I'm guessing that boarders get meals supplied and flatmates do not.
    Last edited by brendan; 30-03-2009, 12:47 PM. Reason: Add extra bit about boarders vs flatmates.

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  • Keithw
    replied
    "If the property is owned in his own name and his rental expenses are larger than his rental income, can he claim the loss against his salary income."
    In principle yes, but what is criticial is the percentage used to allocate rental expenses, as opposed to expenses he would have as his private residence.
    IRD tend to look at everything as private expense unless he can show it is required for tenants.
    eg SKY in the common area.
    IRD most likely say he wants sky for his personal use, so unless he can show that he got extra rent because he supplies sky, or that sky is only availble to the tenants & not him, then the best he can get is a proportion of the sky bill, & the worst is he can claim no expense at all because he would have had it personally anyway.

    "If the house has a floor area of 150m2 and his room is 15m2 and the rest of the house is either bedrooms rented by flatmates or common use area, does that mean that the "area of the rented out part" is 90%?"

    Unfortunately not that high. He also has to use part of the common areas -Kitchen, Bathroom, Garage etc
    So either don't incude the common areas in the total area calc & just work out the bedroom areas, thus assuming everyone shares equally the common areas,
    or more correctly
    add up all the sqm of the common areas & add 1/4 of that to his 15sqm bedroom plus any other areas only he uses, eg garage, office etc
    so at a guess I would say each of the other bedrooms 15sqm =45
    plus his 15 = 60 sq
    therefore common areas must be 90 sq
    (adjust this depending on the size of the bedrooms and according to whether he also has other exclusive areas such as garage)
    1/4 of 90 = 22.5
    so his area is 15+22.5
    =37.5 of 150
    thus he should be able claim 3/4 of any obvious tenancy related expenses in the property (which is intuitively correct as there are 4 tenants sharing the place equally)
    Last edited by Keithw; 30-03-2009, 12:24 PM.

    Leave a comment:


  • brendan
    started a topic Renting out rooms in your PPOR

    Renting out rooms in your PPOR

    A friend of mine is in the process of purchasing a 4 bedroom house, and is planning to rent out 3 of the rooms to help pay the mortgage. IR246 says that you can claim a percentage of your total property expenses against your rental income. (I've quoted the section of IR246 below). Mortgage interest will be approximately 450pw, and rent from 3 of the rooms will be about 410pw.

    Does anyone else have experience doing this? If the property is owned in his own name and his rental expenses are larger than his rental income, can he claim the loss against his salary income, or is the loss carried forward to be offset against future rental income.

    If the house has a floor area of 150m2 and his room is 15m2 and the rest of the house is either bedrooms rented by flatmates or common use area, does that mean that the "area of the rented out part" is 90%?

    Originally posted by IR246 Part 3 Page 44 http://www.ird.govt.nz/resources/1/e/1efe4c804bbe591281ffd1bc87554a30/ir264.pdf
    You may live in a property and also have other tenants in the same property.
    This can happen if you have flatmates living with you, or if you live in one
    part of a multi-fl at building and rent out the rest. In either of these situations
    you must declare your rental income.

    You can use either of the following methods to work out which expenses you
    can claim against your rental income.
    ....
    2. Keep a record of your total expenses for the property, and apportion these
    according to the area of the rented-out part. For example, if you rent out
    a flat that takes up one-quarter of the area of your house, you could claim
    25% of the house expenses.
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