To Hold or Not to Hold?
The following information is drawn from an article in the ‘Maverick’ newsletter prepared by BMT tax depreciation
It relates with a high percentage of our market place who are fortunate enough to be in a position that allows them to hold their current property and offer it for rent, and then purchase a new property to call home.
The Maverick states that a recent analysis of schedules prepared by BMT Tax Depreciation highlighted that 22% of schedules were for primary places of residence (homes) which the owners turned in to rental properties. This demonstrates a popular trend occurring in the residential market, in which a significant number of home owners are recognising the additional value of renting out their home rather than selling it.
There are many reasons for this trend
Some home owners may need to temporarily relocate, with a plan of returning to their home. There could also be external factors or events which create a temporary peak in rental demand, causing home owners to take advantage of the higher rental yield.
The most common reason is usually due to the prospect of long term capital growth along with the opportunity to use equity to finance the next home and avoid selling costs. No matter what reason the home owner has when deciding to rent out their home, it’s important they are aware how this will transform their tax situation.
By renting out their home, owners will also become eligible to claim depreciation deductions for the structural components of the building as well as the plant and equipment assets contained in the property, subject to qualifying dates.
Considering renting out your property?
If you are considering renting out your property there are a number of things you will need to do; meet a real estate agent, contact your accountant and contact a quantity surveyor such as BMT for an estimate of likely available depreciation deductions.
Contacting a real estate agent will enable you to gain an accurate achievable rental income, and so we can provide you with an accurate market appraisal for the current value of your home. Capital gains tax, is the tax payable on the increase in the value of the property (capital gain) from the point that it starts generating an income for you up to the value at which you sell the property, so it is important to know a ‘start value’, and then the most important step comes next. Meet your accountant to discuss renting out your home; they will advise you on tax, and future Capital gains implications. Provide them with the rental income estimates, depreciation deductions and schedules, so they can then accurately advise on the best course of action for both the short and long term.