What are the implications if you move into your investment property?
While many people consider keeping their primary place of residence and turning it into an investment property when they upgrade or move, it’s slightly less common to move into your investment property down the track.
Buying your first property as an investment and moving into it later can allow you to save substantial funds upfront, particularly if you live with your parents or are renting cheaply and have a tenant paying market rent. You may also not be ready to live in the home yet, or unable to afford it, so this provides the opportunity to get into the market early.
If you want to move in but your tenant has not yet completed their lease, make sure you speak to your property manager about your options. You are required to fulfil the tenancy agreement and provide the relevant notice periods.
A capital gains tax exemption is likely to apply for the period that you have lived in the house, however you will still be taxed on the portion of time that it was an investment and was rented.
Living in the property for more than 12 months triggers a 50% Capital Gains Tax (CGT) reduction, says Destiny Financial founder and director Margaret Lomas. She explains that if you have lived in the property, as well as rented it during ownership, and subsequently sell at a later date, then the property incurs pro-rata capital gains tax using the cost base on the first half and the eventual sales price. It is calculated according to the days rented and not rented, with the “not rented” period attracting a CGT reduction.
However it does get more complicated if you were to rent out a portion of the property, which would require the period of time that you lived alone in the property to be calculated pro-rata as above with the potential CGT exemption, and the period of tenancy to be calculated under a different method for CGT. Moving into the property will make you lose any year to year deductible negative gearing benefits on that investment.
Speaking to your accountant is a must, as the impact will be mostly felt when you sell, not before.
If some of the major growth is still coming for the area, it may make sense to purchase a new home, bearing in mind the costs of purchasing.
For help getting started in property investment, speak with a RAMS home loan specialist and pick up your free RAMS Investor Pack.
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Disclaimer: Information in this material in general and does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. You should also obtain independent professional advice relevant to your financial circumstances.
The taxation positions described are general statements and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and their interpretation.
RAMS Financial Group Pty Limited does not endorse or assume any responsibility for the advice, content or services provided by Property Observer or any other third party referred to in this material.
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