Tenants vs flatmates?

Question from Amy updated on 11th July 2013:

My partner and I are looking to get into property investment. We are currently renting in a shared house so we thought a possibility for our first investment could be to purchase a three bedroom house in a capital growth area and rent the spare rooms for cashflow. We're aware that if you purchase a property to live in yourself and rent the spare rooms, this will mean that mortgage interest isn't tax deductible. However, what would be the situation if we didn't move in straight away then moved in later - say six to 12 months? Would we then be able to continue to treat the property as a full investment property and claim tax back on mortgage interests, maintenance, insurance and chattle depreciation etc? Thanks very much for any help!

Our expert Mark Withers responded:

If you don't move in yourselves but instead rent the property out you will need to declare the net result in your tax returns, profit or loss. This would stop when you moved in personally. With flatmates, the IRD publish a standard cost for a boarder which is currently at $247 per week. If the rent from the flatmate is less than this no income from the flatmate needs to be returned.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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