Rental income question

[Sam3000]

Hi there,

If I purchase a property as an Owner Occupied and then a few months later I decided to rent it out. Can I have the interest payments on money borrowed to purchase the property deducted from rental income ?

Thank you,
Sam

[donna]

Hi Sam,

Welcome to the forums. Why purchase as an owner occupier, if you're going to rent it out? This the first question.

If you're borrowing funds and using Kiwisaver to purchase an owner occupier home and then you change it to a rental then there will be complications, like needing to declare it's a rental etc. Plus consider which entity owns it too for the ring-fencing.

cheers,

Donna

[Learning]

I think our accountant did it by working our the square meterage of each dwelling to work out the rental vs owner-occupied percentage. The mortgage, rates, insurance, etc, were split accordingly.

[artemis]

Yes. This situation is covered in the IRD booklet IR264. Page 11. But suggest have a good read of IR264 anyway.

[Sam3000]

Hi Donna,
Thank you for your reply. Sometimes circumstances requires from us to change . I don't have a Kiwi saver yet.
Can I rent the new property,If I don't convert from owner occupied to Rental Occupied? If yes, does it mean that I can't claim expenses?

Who should I talk to convert from owner occupied to rental property?

Please note, I already own a property with my sister and both of us would like to rent this out (Mortage Free from my side).

Please advice,
Thanks

[Sam3000]

Thanks for your reply. Is that related for boarding or renting the house?

[Bob Kane]

Hi there,

If I purchase a property as an Owner Occupied and then a few months later I decided to rent it out. Can I have the interest payments on money borrowed to purchase the property deducted from rental income ?

Thank you,
Sam

As I understand it, the answer is no.
The borrowed money was used to purchase a PPOR and the interest would never be deductible.
I'm puzzled why some people think otherwise.
Did Jacinda change the tax deductible rules recently?

[Sam3000]

As I understand it, the answer is no.
The borrowed money was used to purchase a PPOR and the interest would never be deductible.

Hi Bob,
Thank you for your reply.
1Does that mean there is no way to convert that later on to rental property?
2: What will happen to other expenses like insurance, rates can they be deducted?

Thanks,
Sam

[Bob Kane]

1. I think a good property accountant could work a way to get the interest deductible - perhaps taking out another mortgage and paying off the original mortgage. Or variations of that.
2. Expenses would be deductible.

As an aside, you don't 'convert' a house to a rental.
You just rent it out whenever you want.
Claiming expenses off the rental income is the tricky part - IRD may turn down your claims and then tax you on the rental income - the worst outcome.
There's a few accountants on PropertyTalk - offer them some $$$ for advice as they are invaluable on tax matters related to property.
Contact Rosco - he's good.

[artemis]

As I understand it, the answer is no.
The borrowed money was used to purchase a PPOR and the interest would never be deductible.
I'm puzzled why some people think otherwise.
Did Jacinda change the tax deductible rules recently?

No. Check out IR264 page 11 et al.

[Bob Kane]

I didn't think that applies in Sam's case.
He's changing the use of a property.
He didn't start off with the purchase of a rental.
Here's a quote from IRD:

You can claim the interest charged on money you've borrowed to buy your rental property

Sam never borrowed money to buy his rental.
I thought this had a major impact on the deductibility of the mortgage interest.
This was the case several years ago - has IRD changed the rules recently?
I do notice that renting the house will drag it into the bright line requirement.

[artemis]

The worked example given in IR264 is as below, and has been the case for years.

You own a property and live in it for the first three months of the year. You then
rent it out for the rest of the year. The cost of rates, insurance and interest for the
year is $9,230. To work out your rental income for the year, deduct the ongoing
costs for the nine months the property was rented out, that is, 9/12ths of the
expenses.

[Bob Kane]

I stand corrected.
Ignore what I've said.

[Sam3000]

1. I think a good property accountant could work a way to get the interest deductible - perhaps taking out another mortgage and paying off the original mortgage. Or variations of that.
2. Expenses would be deductible.

As an aside, you don't 'convert' a house to a rental.
You just rent it out whenever you want.
Claiming expenses off the rental income is the tricky part - IRD may turn down your claims and then tax you on the rental income - the worst outcome.
There's a few accountants on PropertyTalk - offer them some $$$ for advice as they are invaluable on tax matters related to property.
Contact Rosco - he's good.

Hi Thanks for reply. I Live in north shore Auckland. Do you know good property accountant that you can recommend. Thanks

[Bob Kane]

Try:
Rosco cswaikato.co.nz
PABAL - pabaco.nz
Anthonyacat - aataccounting.co.nz
GRA gra.co.nz

Don't worry about location and having face to face meetings with your accountant.
You're not dating them.
I haven't visited an accountant in 15 years.