- April 19, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Request for information on tax implications for parents living in purchased home
Hello,
My partner and I are currently in the process of purchasing our first home and are considering allowing my older parents to live in the property for a few years before we move in. They have agreed to contribute significantly towards the mortgage payments, and we are willing and able to top it up with our own funds, in addition to our rent payments. Our intention is not to profit from this arrangement, but rather to provide support to our parents.
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AI Legalese Decoder can be a valuable resource in this situation as it can assist in interpreting and simplifying legal jargon related to tax implications. By using this tool, you can gain a clearer understanding of the tax implications of allowing your parents to live in the purchased home, ensuring that you are fully informed and compliant with relevant laws and regulations.
We are seeking guidance on the potential tax consequences of this scenario and would appreciate any insights or advice you could provide. Thank you for your help.
Sincerely, [Your Name]
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Before you get as far as tax, if you buy a house that you aren’t living in it will be a non owner occupied property (NOO). With the LVR restrictions on a NOO property you’ll typically need to have 35% deposit, not the usual 20%.
Have you got 35% deposit?
You’d only pay tax on profits. Now that mortgage interest deductions are back on the table, it would be difficult for a FHB to be running a rental at a profit.
Regarding LVR restrictions, u/skiwi17 is correct that you’d need a 35% deposit for an investment property. However, as u/Prize_Status_3585 points out the bank would only know what you told them, and to be honest they’d prefer that you didn’t.
From IRD guide (IR264):
If you rent your property out for less than its true rental value, for example, to a relative or friend at mates’ rates, and you still make a profit from it, the profit is taxable as part of your income. But if you make a loss in this situation, because the expenses of the property are more than the reduced rental income, you generally will not be able to deduct expenses more than the amount of income you received.