I bought a house and lived in it for 4 years, purchase price $94,000. I then needed a larger house due to growing family and subsequently rented out the old house, now valued at $180,000.
It has been tenanted for approx. 1.5 years and was valued at $167,000 at the time it became an investment property.
My questions is, if we are to sell the house what can we expect to pay in capital gains? How is this calulated – is it on the original price or the price when it became a tenanted property?
Thanks,
Alan Gould
Hi Alan,
Taken from the notes for Sydneys Masterclass…
“Tax is calculated by ((Sales Price – Net Purchase Price – Sales costs) x 50%) x 48.5%)”
– 50% is for the CGT discount as you have had it for over 12 months.
– 48.5% is the Highest Marginal tax rate.Dan Lewis
Originally posted by tribe_of_dan:Hi Alan,
Taken from the notes for Sydneys Masterclass…
“Tax is calculated by ((Sales Price – Net Purchase Price – Sales costs) x 50%) x 48.5%)”
– 50% is for the CGT discount as you have had it for over 12 months.
– 48.5% is the Highest Marginal tax rate.Dan Lewis
Dan it is not paid at the highest tax rate but at your own tax rate. This leads to the possiblity of reducing CGT liability by selling in a year of poor income such as after retirement
Michael Yardney
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I am in the same-ish situation as you right now and I asked a very similar question to yours, on this forum, not so long ago.
I brought a house in August 2002, lived in it until September 2003 – at which time I started renting the place out (starting producing income from the property).
The house is now for sale.
CGT law can be very confusing. I spoke to a seemily savy R/E Agent who said the CGT legislation has had 70 changes made to it in the last year alone! He also said that the ATO, at the moment, is keeping a particularly watchful eye on tax surrounding aquiring and disposing of property.
Anyways, I digress….
From what I have researched (both on here, over the phone, and various emails) this is what I have learnt, so far, about CGT.
You have to get a valuation done (by a licensed Property Evaluation company) of your property to ascertain the Market Value of it at the time you started renting it out.
This is then your COST BASE.
Then (I think) it goes a little something like this:
SELLING PRICE – (COST BASE + SELLING COSTS) =
YOUR CAPITAL GAIN.If you lived in the property yourself for at least 12 months, before you started renting it out, then you will only be charged 50% of Capital Gains Tax, instead of 100%.
From what I understand, this amount is then charged at your OWN MARGINAL TAX RATE. This is because your Capital Gain is added to your Income Tax (for the year that you sell the property). So depending on what your income for that year is and what your capital gain is, and after claiming all deductions and applying all depreciatable items, will determine what TAX BRACKET you come into, with 48.5% being the highest.
Hope that was somewhat helpful.
pasandbec
It gets even more confusing when you buy another property (like I did)….
I have to decide which property I’m going to claim as my PPOR – the one that’s now for sale (that I lived in and that was also rented out) or the new one I brought?
There is a ‘cross-over’ period of 6 months in which you can claim BOTH properties as your PPOR, but I don’t fall into this catergory.
I will cut and paste excerpts from emails that went back and forth from me to a Capital Gains Tax expert <Edited: I have removed these for the time being on the assumption that you don’t have permission for them to be published. If you do have permission then please post them again>, but beware, you may have to read them a few times over to ‘get it’.
Note: When I rang several R/E agents to get them to do an evaluation on my property as at September 2003, they advised that I should use a Licensed Property Evaluation company to do it for me. So just note that when you read the part, below, about ‘any reasonable method’.
Cheers,
Penny (pasandbec)Hi,
Just make sure that the CGT advice you have is from an experienced accountant.
I’m probably wrong, but I thought you could still have a PPOR that you rented out for up to six years and would still qualify for the PPOR CGT exemption.
If you have bought another house elsewhere, then you may be liable for CGT on the price gain since you moved in and when it becomes your PPOR, but this can all be worked through.
Then again, I’m not ‘in the know’ about these things anymore… which is why you need to seek the paid advice of a qualified and experienced professional.
Bye,
Steve McKnight
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