Can I claim tax deductions for renovating my PPOR into a rental?

T

therokujoy

New Member
I’m wondering—if I renovate the downstairs area of my PPOR and block off the internal stairs, turning it into basically a one-bedroom unit or bedsit, but it wouldn’t have separate power, and I rent that part out, would those renovations be tax deductible?
 
Be very careful when people suggest that renovations on your primary residence are tax deductible. (I’m a broker, not an accountant.)

1. Understand the difference between improvements especially capital works and replacements. This affects whether you depreciate the cost or claim a direct tax deduction.

2. Get advice from your accountant, since your home is generally CGT free. Your decision may depend on whether you declare rental income or accept cash.

3. Hire a quantity surveyor if it’s worthwhile. They can deter mine what you can claim and at what percentage.

4. Have the property revalued after renovations to reset the CGT clock.

5. Check whether renovations are deductible before you actually receive rental income.
 
Setting up the area is a capital expense, not a tax deductible cost at the time you make the purchase. For income producing property, the capital depreciation rate is set at 2.5% annually.

You can refer to the ATO portal for deductible depreciation items on rental properties, and you will find that certain assets can be claimed over shorter timeframes of 3 to 10 years.

Additionally, a portion of other home expenses such as interest on your mortgage, council rates, and electricity can also be claimed as capital depreciation. Always consult with your tax accountant and, for the most accurate depreciation outcome, engage a quantity surveyor.

Be aware that taking these steps may trigger capital gains tax on the portion of the property used for rental. This can affect long term financial viability.

Another viable option is having a friend or family member stay as a boarder and contribute in cash toward household expenses.

This process is more complex than it appears, so it is essential to get tailored advice from your accountant. I trust this information provides a solid foundation for your next consultation.
 
Back
Top