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  1. #1

    Default Rental income question

    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

  2. #2
    Join Date
    Aug 2003
    Posts
    7,579

    Default

    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
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  3. #3

    Default

    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.
    Last edited by Learning; 27-04-2019 at 08:26 PM.

  4. #4
    Join Date
    May 2004
    Posts
    2,742

    Default

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

  5. #5

    Default

    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

  6. #6

    Default

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

  7. #7
    Join Date
    May 2008
    Posts
    3,500

    Default

    Quote Originally Posted by Sam3000 View Post
    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?

  8. #8

    Default

    Quote Originally Posted by Bob Kane View Post
    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

  9. #9
    Join Date
    May 2008
    Posts
    3,500

    Default

    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.
    Last edited by Bob Kane; 28-04-2019 at 12:13 AM.

  10. #10
    Join Date
    May 2004
    Posts
    2,742

    Default

    Quote Originally Posted by Bob Kane View Post
    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.


 

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