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We moved back from overseas into one of our rentals [House A], entirely as a temporary measure for 3.5 months. This was to a) provide a landing point whilst I found work in NZ; and b) allow us to renovate it, as it needed doing and would be unrentable whilst undergoing the work (it would also keep me busy whilst job hunting). The intent was to keep this as a rental property.
In the meantime we sold another rental [House B] and used the proceeds of the sale to paydown a mortgage that was against all our rental properties [Houses A, B & C] as a single group, although it would have been taken out at the time we originally purchased House A. So my accountant argues the 'reason for borrowing' was to purchase House A.
So whilst we were living in House A we didn't claim an deductions on mortgage payments on the property (I think it was calculated prorate across the values of the total properties). I found work very quickly and was living in another City 5 days out of 7 for most of the time we were renovating (so not sure which was my PPOR). FYI - we don't bother with claiming depreciation on the properties, as in our view it creates a mess when you sell a property with claw-back of tax not paid etc. The houses are privately owned by us and not in any trust or tax vehicle.
The bit that is causing me problems is my accountant is suggesting in this instance that we were selling a property (income earning) [House B] to reduce a non deductible private debt [House A - because we were living in it at the time the mortgage was settled]. This seems ridiculous as it leads me to think that if we all cash-up some day then if we spend the money on ourselves we will have to foot a tax bill on the interest payments - it just doesn't sound right. I would argue the occupation of House A was only ever temporary (I was never really expecting to get a job in that town) and it was debatable if it was ever my PPOR given I was living in another town most of the time.
I feel my accountant is being overly cautious and wanting to lump me with a $3k tax bill on the $9k of interest payments made against the mortgage associated with House A.
Also I am concerned that if we do decide to one day take House A off the rental market and live in it as a PPOR will we be hit with a tax bill for everything we ever claimed against it? In that instance should we be buying or selling it to/from another entity?
Views welcome.
In the meantime we sold another rental [House B] and used the proceeds of the sale to paydown a mortgage that was against all our rental properties [Houses A, B & C] as a single group, although it would have been taken out at the time we originally purchased House A. So my accountant argues the 'reason for borrowing' was to purchase House A.
So whilst we were living in House A we didn't claim an deductions on mortgage payments on the property (I think it was calculated prorate across the values of the total properties). I found work very quickly and was living in another City 5 days out of 7 for most of the time we were renovating (so not sure which was my PPOR). FYI - we don't bother with claiming depreciation on the properties, as in our view it creates a mess when you sell a property with claw-back of tax not paid etc. The houses are privately owned by us and not in any trust or tax vehicle.
The bit that is causing me problems is my accountant is suggesting in this instance that we were selling a property (income earning) [House B] to reduce a non deductible private debt [House A - because we were living in it at the time the mortgage was settled]. This seems ridiculous as it leads me to think that if we all cash-up some day then if we spend the money on ourselves we will have to foot a tax bill on the interest payments - it just doesn't sound right. I would argue the occupation of House A was only ever temporary (I was never really expecting to get a job in that town) and it was debatable if it was ever my PPOR given I was living in another town most of the time.
I feel my accountant is being overly cautious and wanting to lump me with a $3k tax bill on the $9k of interest payments made against the mortgage associated with House A.
Also I am concerned that if we do decide to one day take House A off the rental market and live in it as a PPOR will we be hit with a tax bill for everything we ever claimed against it? In that instance should we be buying or selling it to/from another entity?
Views welcome.
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