Buying a home to live in but renting 1st 4 years

[RazorX]

Hi MM and bleg

Thanks very much for the tips. Your comments bring a few things to mind:

Taking about buying a 'home' but renting out until I move in scenario - If IRD won't allow expenses claimed in this case do I also have to return the rental income since my intention would be to help pay off the mortgage until I moved in, not to make a profit? In theory if I'm not allowed to claim expenses because my intention is not to crate a profit, then i should have to return tax on the rent received either.

Um... and would this forum discussing ideas like this be considered part of an auditable trail? (Assuming they could identify me in real life... which I probably just answered my own question... but still...)

Thanks again

Razor

[fungus pudding]

Hi MM and bleg

Thanks very much for the tips. Your comments bring a few things to mind:

Taking about buying a 'home' but renting out until I move in scenario - If IRD won't allow expenses claimed in this case do I also have to return the rental income since my intention would be to help pay off the mortgage until I moved in, not to make a profit? In theory if I'm not allowed to claim expenses because my intention is not to crate a profit, then i should have to return tax on the rent received either.

Um... and would this forum discussing ideas like this be considered part of an auditable trail? (Assuming they could identify me in real life... which I probably just answered my own question... but still...)

Thanks again

Razor

If you can convince IRD that 'just paying off the mortgage' is not making a profit ...good luck! Quite seriously, the best way to avoid tax in your case is simply to evade it, i.e. not declare it.

[minimoke]

Hi MM and bleg

Thanks very much for the tips. Your comments bring a few things to mind:

Taking about buying a 'home' but renting out until I move in scenario - If IRD won't allow expenses claimed in this case do I also have to return the rental income since my intention would be to help pay off the mortgage until I moved in, not to make a profit? In theory if I'm not allowed to claim expenses because my intention is not to crate a profit, then i should have to return tax on the rent received either.

I'm not sure I fully understand your question.
It is arguable you have a responsibility to pay just the right amount of tax on your taxable income. Not a penny more nor a penny less.

If you are receiving rent as income you have an obligation to pay tax on that income. IRD have an obligation to tax you on your source income which will include rent. However you can offset your tax exposure by claiming back legitimate expenses generated in creating that income. If your tax reducing expenses are greater than your tax accessible income you don't pay tax. If your total income exceeded expenses you do pay tax. It is not IRD';s job to judge you on your business accumen (ie whether you are any good at making a profit) nor do they care about the legitimacy of the source of your income (you could be dealing crack for all they care) they just want their fair cut of your income.

[percy]

It is also important to tell the bank and insurance company the property will be rented until you move in.

[RazorX]

MM - so basically I'd have to return tax on net income. (Rent minus deductible expenses such as rates and R & M) This is irrespective of whether I intend to buy as an investment, or buy as a home?

Percy: Thanks for the heads up. I do need to look into insurance costs - no doubt they'll go up if I rent instead of living there myself.

[minimoke]

MM - so basically I'd have to return tax on net income. (Rent minus deductible expenses such as rates and R & M) This is irrespective of whether I intend to buy as an investment, or buy as a home?

Put aside the buying the house thing for a moment.

If you receive an income IRD wants a cut of it. If you get income from wages they want a cut. If you get income from renting out a house / home, they want a cut. If get an income above a certain level from having boarders or flatmates, you guessed it, IRD want their share.

This is where you need to get into risk management. Whats the risk of having undeclared flatmate / rental income against the risk of IRD finding out? I doubt you'll be on IRD's radar for flatmate income. But it may be that at some stage your lifestyle is in excess of your declared income which may raise a flag with IRD. An extreme case of this is the accountant up Hamilton way that fleeced the family trust.

Check out IRD's website. They have loads of information (once you find it) on what your obligations are and on what it is you can claim.

[percy]

MM - so basically I'd have to return tax on net income. (Rent minus deductible expenses such as rates and R & M) This is irrespective of whether I intend to buy as an investment, or buy as a home?

Percy: Thanks for the heads up. I do need to look into insurance costs - no doubt they'll go up if I rent instead of living there myself.

Also the bank my have different lending criteria on rental properties compared to owner -occupier. With the bank,insurance company,tax dept you must be truthful at ALL times. You are doing well to be thinking property,and saving $10,000 a year.Property is the same as everything.Put in the time,do the research, and you will get the rewards.Try to be the expert in the area you are looking at.Know what prices the sales were made at in that area.You may save 3 or 4 years savings by doing your research. A two bedroom with a sunroom can become a three bedroom house.Doing up the garden when selling can add thousands of dollars to sale price.
Having your finance arranged,puts you in front of people who have a house to sell.

[minimoke]

Percy: Thanks for the heads up. I do need to look into insurance costs - no doubt they'll go up if I rent instead of living there myself.

If you are looking at a budget plan for a 30 - 50% increases in premiums. People think the Christchurch earthquake affects Cantabrians. The rest of NZ is in for a nasty shock as their renewals come up.

[robo]

Put in the time,do the research, and you will get the rewards.Try to be the expert in the area you are looking at.Know what prices the sales were made at in that area.You may save 3 or 4 years savings by doing your research. A two bedroom with a sunroom can become a three bedroom house.Doing up the garden when selling can add thousands of dollars to sale price.
.

Some good points here from Percy ,think about demographics of our ageing populations, smaller properties closer to services will attract a premium in the future, the 100 to 1 ratio is also relevant , that is you could look at many many properties before finding the perfect investment, you will know as soon as you see it, this is an excellent time to be looking at property, even Skol seems to think so too.

[percy]

Some good points here from Percy ,think about demographics of our ageing populations, smaller properties closer to services will attract a premium in the future, the 100 to 1 ratio is also relevant , that is you could look at many many properties before finding the perfect investment, you will know as soon as you see it, this is an excellent time to be looking at property, even Skol seems to think so too.

Robo,
My brother is a valuer in Hobart.He said nearly exactly what you said,"smaller properties,near a mall ". The 100 to 1 ratio is a good reminder to RazorX.