We are in Western Australia, we have an investment property in VIC which is positive geared. We own our own home out right.
We have bought a house for 250,000 and spent 100,000 to fixed it up and it is now worth around 450-490,000. Not sure whether
to move into it for a year or two to avoid capital gains??, or weather to rent it out or maybe sell it. not sure $ wise what is the best way to go as far as tax etc.
ThanksHi PPJ,
I think moving in now might be “shutting the gate after the horse has bolted”. But then, I am not an adviser on Tax matters, so I would rather have someone else check my answer there. There might be some situations in which you CAN buy a house, do it up (i.e. add value) and then nominate it as your PPOR (or perhaps nominate it as of a date prior to its renovation ???)If you moved into it, what happens to your current PPOR? Will you rent it out while living in this other one? If so, and you have nominated the OTHER house as your PPOR, then you will have CGT to pay when it is sold. Or would it be better to SELL your current PPOR, thus negating any CGT on its sale, and allowing you to move into this new one. Does that work?
I am not so sure that attempting to choose the “best way to go as far as tax is concerned” is going to lead you to the best answer.
Perhaps some better questions are
“To bring me closer to my goals, should I sell this newly renovated house?”
or “Is it liable to gather more equity in the near future (thus inviting me to rent it and hold on)?”
or “Does my portfolio require more Income, or more Equity (or cash) right now? If I sold this renovated property, what would be my plans for the released $$? Would I have a better way to grow them? Would selling one house allow me to buy TWO more, thus increasing my equity, but also my liabilities (mortgages)”
“Selling my existing PPOR may work out to be a far cleaner way to release a large chunk of equity and turn it into cash. What would I then use the cash for?”As you can see, PPJ, there can be a host of questions surrounding that one property. Without a full understanding of your personal situation, none of us would offer a “You should do this” kind of answer. That requires you, and your knowledge of your situation, perhaps along with an adviser (perhaps one from on here, after you have shared more of your situation with them).
Hope the thoughts help a bit….
Benny
Thank you sooo much, there is a lot of food for thought there, I will sit down with hubby and we will go through the different scenarios you have suggested. I am sure we will have more questions for you!!
thanks again. cheersHi, we have another question. We are living in our PPOR, we bought another house for 250,000 11 months ago, we have spent 100,000 renovating, we have not lived in it nor have we rented it out. We have been paying water and electricity for the full period while working on it. It is valued between 450-480,000 after the reno. If we were to sell it tomorrow for 460,000 what fees and tax’s would we be up for and what can we deduct? I can’t make sense of the ATO publications on CGT. I am so confused. Do we pay tax on the 210,000 (sell price – bought price) or on 110,000 (sell price – bought price- reno price) and what tax’s are they.
I was told that if we were to rent it out when we finished the reno’s. That if we get a valuation done before we rented it, out then rent it out for a year. Then decided to sell we would only pay tax on the difference from when it was valued at and what we sold it for?
so confused. PPJ-
This reply was modified 9 years, 1 month ago by
pinkpicklejuice.
Hi PPJ,
Again, there will be a host of questions – and I am sure I haven’t thought of them all. At times like this, I would strongly suggest you get some expert advice around taxation.What I “think” I know is this :-
1. Since you haven’t yet had anyone else renting it, this perhaps could be a PPOR for you – but then, what happens to existing PPOR?2. If you were to sell this “11 month reno” now, you would be paying full price CGT. Wait 12 months (plus a bit more to be sure) before attempting to sell it, and Cap Gain is cut in half (so CGT will be lowered too). The ATO uses the Contract Date for CGT purposes (not Settlement date – watch out !!)
3. If you have “other Capital losses” then a loss can offset the Gain on this house (e.g. if you sold Shares for less than you bought them, then that is a Capital Loss).
4. Re “How much”, I can’t be sure as I am not a Tax adviser. I do know that you can include Selling Costs as a loss (RE agent fees, transfer fees, etc). So these can subtract from the $110k so that you pay (a bit) less Tax.
5. Whose name(s) is the property in? If in two names, you “might” be able to split the gain over two people to minimise the CGT.
Roughly how CGT works is that (after the 50% discount when held for 12 months or more is applied) the $ Gain (sell price less cost price, less other deductibles) is ADDED to your Income for the year. Depending on the amounts, this “might” push you into a higher Tax bracket, so the Gain might be taxed at 35% instead of 30% (or whatever these numbers are these days – told you I’m not a Tax adviser… :p )
Go talk to a suitable adviser (Accountant, Financial Planner, etc) about this whole scenario. The LAST thing you should do is to go ahead with a sale BEFORE you know the likely outcome. That could hurt bigtime, so do find out first, eh?
Benny
Thank you Benny
I think we are going to see a financial adviser,
anyone out there know of a good one in WA?
Cheers PPJ.-
This reply was modified 9 years, 1 month ago by
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