TAX deductions on a block of land
- Thread starter agent007
- Start date
HI
Interest is tax deductible on a block of land bought to build an income producing house.
The tax law does not specify how long this generous tax deduction might go on, but, the relevant court cases (Steele's, amongst others) suggests that it should not be too long.
If you leave the property vacant with no effort to move towards building a house, you may find that the tax office will not allow a tax deduction.
Bye the way, even if you do not claim the interest as a tax deduction because of the delay, you can claim the costs as a cost to reduce your CGT when you eventually sell the property.
Dale
Interest is tax deductible on a block of land bought to build an income producing house.
The tax law does not specify how long this generous tax deduction might go on, but, the relevant court cases (Steele's, amongst others) suggests that it should not be too long.
If you leave the property vacant with no effort to move towards building a house, you may find that the tax office will not allow a tax deduction.
Bye the way, even if you do not claim the interest as a tax deduction because of the delay, you can claim the costs as a cost to reduce your CGT when you eventually sell the property.
Dale
Interestingly in this months issue of API magazine (Feb 06) the case study on page 58-61 called 'Burned by building experience' is about an investor who bought a house-and-land package from a local Gold Coast builder.
"What we didn't realise at the time was that prior to "practical completion" of the house, our costs would not be claimable off our income - it was only claimable off capital gains on any eventual sale of the property." They discovered this after contracts were signed, in a conversation with their accountant.
This surprised me because I thought the interest would have been deductible as it is when you buy vacant land with the intention of building an investment property. Is it a different story with house-and-land packages? (or should they get a new accountant?)
"What we didn't realise at the time was that prior to "practical completion" of the house, our costs would not be claimable off our income - it was only claimable off capital gains on any eventual sale of the property." They discovered this after contracts were signed, in a conversation with their accountant.
This surprised me because I thought the interest would have been deductible as it is when you buy vacant land with the intention of building an investment property. Is it a different story with house-and-land packages? (or should they get a new accountant?)
Ebbie said:
For some reason, there are people in the world who feel mortally wounded that they cannot claim all the costs of building a house for rental as they build it as a full tax deduction. As with any investment with tax consequences, see your accountant.
I tell people that if you buy a house, you can't claim a deduction for the house on acquisition. Why should someone be able to claim a deduction for the cost of the house just because they built it as opposed to someone who bought one with land? (Nevermind the no income-no deduction rule.)
As decided by a recent case, you can claim interest on land that you intend to build a rental property on. However, other costs (ie not interest) in building a property are not deductible, as mentioned, and form part of the capital base of the property once completed. Once the building is available for tenants, you can start claiming deductions. The article mentions practical completion as being the factor - that is incorrect. Once the building is up and you make it available for tenants, that is when you can start claiming, rented or not (I'd have a record of a call to a real estate agency or a copy of an ad in the paper as evidence). Most of the time this happens to the same day so it isn't really an issue.
I wouldn't rely on the article for accuracy in tax advice anyway. You are getting second-hand tax advice on a subject of some complexity. If they quoted an accountant on the record, that would be a different story altogether.
Sorry Mry my mistake, I've just re-read the article and they were only talking about the INTEREST costs. If I'd included the previous paragraph the whole quote should have been:Mry said:
"Over that time they would be paying interest that they wouldn't be able to claim on their income.
"What we didn't realise at the time was that prior to "practical completion" of the house, our costs would not be claimable off our income - it was only claimable off capital gains on any eventual sale of the property."
They discovered this after contracts were signed, in a conversation with their accountant."
That's what I thought. Thanks for pointing out the mistake in the article with practical completion.Mry said:
Ebbie.
Hi Guys
I have also claimed expenses other than interest on vacant land ( such as council rates , water rates , borrowing costs etc ) for the period from land settlement date onwards.
See ATO document http://law.ato.gov.au/atolaw/view.htm?locid='AID/AID2001479' for council rates etc and
and http://law.ato.gov.au/atolaw/view.htm?locid='AID/AID2001478'
for borrowing expenses.
Basically all normal expenses may be claimed on vacant land if you intend to construct an income producing property on the land .
As always check with accountant ( or advise your accountant as the case may be )
I have also claimed expenses other than interest on vacant land ( such as council rates , water rates , borrowing costs etc ) for the period from land settlement date onwards.
See ATO document http://law.ato.gov.au/atolaw/view.htm?locid='AID/AID2001479' for council rates etc and
and http://law.ato.gov.au/atolaw/view.htm?locid='AID/AID2001478'
for borrowing expenses.
Basically all normal expenses may be claimed on vacant land if you intend to construct an income producing property on the land .
As always check with accountant ( or advise your accountant as the case may be )
what if
Hello,
Completely tax ignorant...
My hubby had a rental property which has been rented for over 8 years. he demolished last year the house and rebuilt it meaning to put it for rent but then decided to sell it. He sold it just last week. Meanwhile during these months when it was being constructed, He is been paying interest.
1) is he able to claim these interests as a deduction.
2) or s/d he add them to the cost base when for CGT calculations?
Hello,
Completely tax ignorant...
My hubby had a rental property which has been rented for over 8 years. he demolished last year the house and rebuilt it meaning to put it for rent but then decided to sell it. He sold it just last week. Meanwhile during these months when it was being constructed, He is been paying interest.
1) is he able to claim these interests as a deduction.
2) or s/d he add them to the cost base when for CGT calculations?
Hi All,
Just so I have this clear:
1. If you take out a loan to purchase land on which to build a rental property, the interest on the loan will be deductible from the time you took the loan out.
2. The interest on the loan will be deductible at commencement, during and until construction completion of the rental property.
3. And the obvious one, If you take out a loan to purchase a rental property, you can claim the interest charged on that loan as a deduction.
Number 1 & 3 are correct. Now what about number 2?
Just so I have this clear:
1. If you take out a loan to purchase land on which to build a rental property, the interest on the loan will be deductible from the time you took the loan out.
2. The interest on the loan will be deductible at commencement, during and until construction completion of the rental property.
3. And the obvious one, If you take out a loan to purchase a rental property, you can claim the interest charged on that loan as a deduction.
Number 1 & 3 are correct. Now what about number 2?
