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Selling your Rental Property? The Implications of Capital Gains Tax
Thinking of selling your investment property? You need to be aware of the Capital Gains Tax implications. Tasmanian specialist, Baxton Property Management in Hobart turns its attention to what happens when you sell your rental property.
The 2017 Rental Property Owners Tax Guide clearly says that when you sell or cease to own a rental property, you are subject to a capital gains event provided the property was acquired after 19 September, 1985.
The timing of the CGT event
The Tax Guide clearly states that the sale or other disposal of the property happens when the contract was signed, and not when the settlement goes through. If there is no contract, the date it occurred was when change of ownership took place. Even if you are still waiting for approval for a loan, the date of the contract is still the one that applies.
What happens if I made improvements after 1985?
Unfortunately, certain capital improvements that you made to your property after 1985, even if you bought it before 1985, will be subject to capital gains tax regulations.
What exactly is a capital gain or a capital loss?
Capital Gain: If the money you make when you sell the property is more than the money you spent to buy it (cost base), you have a capital gain. There are certain exclusions from your cost base that you must factor in. Briefly, this means you exclude any capital works deductions you have claimed or can claim.
Capital Loss: A capital loss occurs when it’s the other way round – if the reduced cost base is more than what you got for the property.
If you are a co-owner in a rental property you will make a capital gain or loss proportionate to your interest in the partnership. If it’s a 50-50 ownership with one other person, the two of you will each have to deal with half the total Capital Gains or Losses incurred when the property was sold.
What do I have to include in the cost base?
Any incidental expenses that you incurred in acquiring, holding and disposing of the asset must be included in the cost base. These include legal fees, stamp duty and estate agents’ commission.
What is a rollover?
In certain situations, capital gains or losses do not apply. Sometimes a “rollover” means that capital gains tax can be disregarded. This happens in situations such as when your property is destroyed by a natural disaster like fire or floods, or a court order stipulates that you must transfer the property to your ex-wife in a divorce settlement.
It also applies when your property is compulsory acquired. Also known as “resumption”, this is when an authority like the Government, acquires privately-owned land or property, sometimes against the wishes of the owner.
Check with the experts
The sale of your rental property might or might not be subject to capital gains tax and, if it does, it might net a capital gain or a capital loss. The uncertainty about where exactly you stand can be of concern. We at Baxton would strongly recommend that you consult an expert in capital gains tax to make sure that you are not short-changing either yourself or the taxman. For expert property management contact us at the Baxton website.
Written and syndicated by
– Baxton Media.
- Rental Property Tax: No Construction Cost Record? What to do
- Rental Property Owners: Capital Works and Your Tax Deductions
- Rental Property and Tax: Capital Works Time Periods and Rates
We hope you enjoyed this article
The information contained in this article is based on the authors opinion only and is of a general nature which is not indicative of future results or events and does not consider your personal situation or particular needs. Professional advice should always be sought relevant to your circumstances.
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