Hi folks, I've a question I'm struggling with the answer hope anybody can help or point me in the right direction. I bought a house for 60 K 13 months ago. It's my ppor for all that time and hasn't been rented. Obviously I didn't get much for 60k so have worked my butt off the last year fixing her up. It's now worth 280,000 and I was going to rent but am under the impression I will have to pay about 70k capital gains tax. Am I better off selling to avoid this tax. The area I'm Innis highly sought after for rent as there literally isn't any (small town) I'd be looking for 350 per week rent but would take a good tenant a few years to break even with the capital gains tax I'd have to pay for renting it. My long term goal is to buy /sell/rent and fix up cheap houses. Any thoughts on what I should do next
You don’t pay capital gain tax on PPOR even when you stop living in it for up to six years after you move out. Treating former home as main residence
Sorry I should have been a bit clearer, I'm moving out this house regardless and know I'll skip the CGT fees on the house if I sell. It's just whether it's worth keeping as an investment as it will take a great deal of years in rental income to make up for the Capitol gains tax once I've declared as an investment property.
How did you work out the 70K? The CGT cost basis would be based on the value when you start renting the property not purchase price. Assuming you are not utilising the 6 year rule to remove/reduce CGT further. Have you discussed with your accountant? Reviewed the ATO guidelines?
Reni, as best I can I was trying to come up with a figure. It has slipped me by maybe. Profit at time of rent would be 220k (I've owned more than a year so assume 50% off CGT) leaving 110k to declare that tax year. High bracket tax on 110k would mean I owe 44 K in CGT. I think that's more ball park
As per @RENI99 There is no cgt due on any of your current profit (if you do it right). Have a an official valuation done around the time you choose to rent the property, supposing this comes in at $280,000 this becomes your cost base moving forward (assuming you don't claim the 6 year rule because you have bought another PPOR). So lets say you rent out this property from 1st oct 2022 until you sell it 20th August 2025, due to the flat market caused by rising interest rates and the 2nd recession "we had to have" the property sold for $380,000, so minus your cost base your profit is only $100,000 (less any other costs for repairs or sale costs) meaning you cgt is still well under your current estimate. Or look at it this way, you engage an agent to sell this PPOR who you pay $15k in commission and advertising, them you buy somewhere else and pay $35k in stamp duty (total $50,000) so you have just blown/wasted more than the cgt would have amounted to in the example above (where you made over $50k profit As an enterprise).
Where do most of you source good information? Is it through experience learning from mistakes or are you employing people to make decisions for you? I'm wondering whether best to contact a financial advisor or account or similar. Is there specific advise for property handling out there that I could pay for there expertise?
You ultimately make the decisions based on the information you receive, no-one can sign zip unless given authority by you eg power of attorney, agency agreement etc. Accountant, solicitor etc go a long way, many posts on PC too. Even simplistically - did you spend anything to improve the property from $60k to the current value?
I would argue that there is no compelling reason to sell unless the cashflows associated with holding it make no sense. Its low LVR, Likely to produce decent income. Is presently CGT free and may remain so (?). No land tax ? You also need to consider what you would do with the proceeds if you did sell. Property tends to appreciate so selling means it costs you more later to buy back in. By renting it you LOCK IN the tax free CGT at the present market value using s118.192 of ITAA97 eg $280K. Same as if you sell.
Sorry should have rephrased that better. Not making decisions for me rather clearly explained the options to move forward and I could decide what's best
I don't have a mortgage on it I bought with cash. I think your right Paul and others that have mentioned locking in the current market value and renting long term. I was on the fence about selling to get another one cheap one with cash but I guess I could go back to work and pull out equity for a deposit on another one.
Compounding is the way many use property. You "made"equity of over $200K. Then can also use this $280K of equity to make further rental income. That income and the equity will enable you to borrow more and do further things with property. In time growth occurs. You are inflating a balloon. Bit by bit
Thanks Paul sounds like I'm on the right track then, I would love to level up To a point where this income stream and equity would put me in a Position to buy property without having to work to get a mortgage and rather have the ability to bypass the banks and still acquire property.
