My husband and I have purchased a number of negatively geared properties over the past couple of years, and have had no trouble meeting our loan repayments. However, we have now seen the light and realised that this is not the best long-term interest for us. We have also have a reasonably sized share portfolio.
My question is – we have a property in Mountain Creek at the Sunshine Coast which we have negatively geared for 5 years, and are considering selling it (Loan of $205000 – property conservatively valued at $320000.
After reading and listening to the Wealth Guardian, we want to set up a Discretionary Trust which all future property and shares will be bought from.
I would like to hear from people regarding sale of our negatively geared properties (especially since we both would like to retire from waged work in approximately 3 years.
Also if we do sell this Sunshine Coast property, were do we stand with capital gains considering we have claimed depreciation on this asset?
Thanks in anticipation. This is our first post, and we are looking forward to your responses.
Hi there,
Why do you need to sell it? My advise would be not to sell it just because you have decided you want to go +cf… There may be room for a negatively geared property in the portfolio if:
a) There are high rates of potential Capital growth in the area (thus potential to borrow against it for +cf properties – remember you can personally lend to the trust as well)
b) The property is close to becoming + cf as you repay the loan
c) The money you would pay in transaction fees and CGT outweighs the loss you are currently making in the property.
I’m not saying that negatively gearing is necessarily good but you need to put a decision like selling a property into perspective…and consider your ultimate investment goals.
-Nick
Thanks Nick
I hadn’t realised we could personally lend to a trust. I think we may have some more thinking to do yet.[
]walkernick,
What do yo mean “Lend to the trust? In respect to IP’s[?]Take a loan against the equity in the -ve property. Then lend these funds to the trust.
The trust then uses this money for deposits for future purchases in the trusts name. The trust then makes the loan repayments so that the interest is a tax dedution to the trust – not the individual.Rod.
“which we have negatively geared for 5 years, and are considering selling it (Loan of $205000 – property conservatively valued at $320000.”
Now im just learning this stuff but need practice so here goes:
Loan – $205,000
Value – $320,000
Equity – $115,000
Original cost – $240,000 (est)
1. 5 years depreciation claimed @ 2.5% ? = $6k x 5 = $30k
2. written down value 240k – 30k = $210,000
3. capital gain = $320k – $210k = $110k
4. adjust for inflation using indexed cost base
eg 110k / 1997 figure x 2003 figure = 70k
5. liability on 50% of this amount eg 35k
6. at highest tax rate 47% = $16,450Thats just a wild guess cos you didnt give all the nessesary details.
One of the main reasons investors fail is because they sell too early. Believe me I know.
MJK
Crashy,
The depreciation would be only on the cost of the building (not including land value or chattels), so will be less than $6K per year.
Also now that there’s a 50% discount on the gain, there is no longer an adjustment for inflation.
Though I think in some circumstances you can choose to use either the inflation adjusted figure or take the 50%, but not both.Rod.
When assessing capital gain depreciation ( chattels ) is taken into account as profit but building allowance ( 2.5% of building cost ) is not.
MJK
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