Tax issues when living in your rental

Our Experts Answer:

When a person lives in their own rental property, then the property is not available for rent and any expenses incurred are not tax deductible. This is the case regardless of who or what owns house - an individual, company or trust. Any tax refunds will be in direct proportion to the split of expenses between when you were living in the house and when tenants were living in the house.

If on the other hand, you are one person taking a bedroom in your own rental property with say four bedrooms, then the expenses will be apportioned so that 75% of them are deductible and the other 25%, being your share, will not be tax deductible. Whenever a house is purchased as a long term buy and hold, it is wise to make sure this is well documented with the bank, your solicitor and accountant, to verify that your intention at the time of purchase was to own the property long term. That way, should you have to sell in the future, it will be unlikely that you have to pay tax on any gain you make.

Whether or not a person pays tax on their capital gain comes down to their intention at the time of purchase. Please be aware though that IRD will investigate people who own property for a short time before on-selling it - that information is publicly available. In owning a property for a short time, it will pay to document your reasons for selling the property and having evidence to support those reasons, otherwise you may end up with a tax bill that you weren't expecting. It always pays to take advice in situations like this.