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If I Own A House And Then Rent It Out, Can I Claim Expenses?

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Contributor:
Grills
Grills

Question:

I have had conflicting information about this scenario. A legal professional says if I rent out my private home as a rental property without selling it to another legal entity (eg: form a company owned by me and sell my house to the company) that I will be unable to deduct any expenses from the rent earned (eg rates, insurance, repairs) before calculating any tax owing.

Reading the IR264 for Inland Revenue I don't believe this to be true. Are you able to advise which is correct? It's my belief that I do not need to sell the house to a company I own to be able to legitimately deduct expenses.

Answer:

Case law suggests that what matters is how the capital is employed during the period when the cost claimed as a deduction, is incurred.

From the point in time that the taxpayer uses the property to derive rent, you should be able to claim the related expenses. This should not require you to sell your property.

Any cost that is directly related to earning taxable income should be deductible. The usual expenses that are tax deductible are interest on the mortgage (but not principal repayments), property management fees, body corporate fees, rates, insurance,  repair and maintenance costs and any minor equipment costs less than $500.

For related information, see:

If I Lived In A House Before Renting It Out, Is My Mortgage Interest Tax Deductible? 

How Should I Depreciate Rental Property?

Guide To Taxation Of Rental Properties

 

The advice provided is of a general nature and guide2.co.nz is not responsible for any loss that any reader may suffer from following that advice.

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