I was wondering if anybody out there could answer the following question for me. I’m looking at buying an investment property for the first time and therefor am new to the game and have heaps of questions.
If you buy an investment property, I understand that you pay capital gains on the profit you make when you sell it. However, what happens if after a certain amount of years you decide to move into it yourself. What happens then tax wise?
Mark,
My understanding is that when you purchase IP for say $100k rented out for say 3 years. Then you move into your IP in the forth year. The CGT will apply from 1st year to 3rd year.
Therefore you need to do a valuation on the property before you move in.
Kind regards
Chan Dollars
[Retire Young, Retire Rich] [strum]Chan$, I think the valuation only works if you live in it then move out.
For the renting first, then moving in, I believe the CGT is calculated on a pro rata basis of time lived in vs investment.
ie if you live for 1 year, but rented for 3 beforehand, you pay 3/4 CGT.
Cheers
MelIf you choose to live in the property first and then rent it out after you can still call it youre main residence for 6 years.However you would then need somewhere else to call home?????[confused2]
Russ.
You can always rent, Russ.
James
How long do you have to live in a house for to start off with to get this 6 year rule?
I am not aware of any specific time requirements.
However, I would suggest to prove that you lived there, then things like phone bill, electricity/gas bill would have been established under your name for that property address. (Electoral roll too)
James
There is no minimum time a person has to live in a home before it is considered to be their main residence.Page 53 Guide to Capital Gains Tax.
Russ.
you pay capital gains tax on the whole time you owned the home,,, there is a calculation you can get on the ATO website. My advice to you is LIVE IN THE PROPERTY FIRST,before you rent it out.Then when you move back in tell the tax office you have moved in and it is now your main place of residence..
topsy
Originally posted by melbear:Chan$, I think the valuation only works if you live in it then move out.
For the renting first, then moving in, I believe the CGT is calculated on a pro rata basis of time lived in vs investment.
ie if you live for 1 year, but rented for 3 beforehand, you pay 3/4 CGT.
Cheers
MelIf that’s the case then say you buy property at $100k rent it out for 3 years and within that 3 years there is no grow at all. Then you move in the forth year live there for 3 years (say 50% grow) from $100k to $150k. Therefore, after 6 years you sale the property.
Does this meant that you pay CG while the property is your PPOR?
Kind regards
Chan Dollars
[Retire Young, Retire Rich] [strum]Originally posted by melbear:Chan$, I think the valuation only works if you live in it then move out.
For the renting first, then moving in, I believe the CGT is calculated on a pro rata basis of time lived in vs investment.
ie if you live for 1 year, but rented for 3 beforehand, you pay 3/4 CGT.
Cheers
MelAgree here with Melbear Chan$..
It’s worked out on a pro-rata basis, don’t forget the CG tax would be amatised and the inflation is considered isn’t it over that period ?
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Redwing,
So are you saying we are paying CGT eventhough the place is your PPoR.I might need to talk to my accountant for this one.
Kind regards
Chan Dollars
[Retire Young, Retire Rich] [strum]HI again, I just sold my home after living in it for 3 years. the previous 3 years we rented it out. So we owned it for 6 years..during the first 3 years it didn’t gain in value. then we worked hard renovating it and in the end it sold for triple the price we paid…We now owe the tax office almost a years salary….BE CAREFUL…
topsy
Originally posted by Topsy:you pay capital gains tax on the whole time you owned the home,,, there is a calculation you can get on the ATO website. My advice to you is LIVE IN THE PROPERTY FIRST,before you rent it out.Then when you move back in tell the tax office you have moved in and it is now your main place of residence..
Topsy, you only pay the CGT on the portion of time you lived in the house. You’re right in that it sux if there’s no growth at all while it’s an IP, but you renovate or have a boom while you live there, and therefore have to cough up some tax. But, if your ‘gain’ is $50K over the 6 years, you will only be taxed on 3/6 of it, ie $25K, and then that should be halved again to go into your tax return.
Cheers
Mel
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