A Capital gain or capital loss on a property is the difference between what the asset cost you (cost base) and what you received when you disposed of the property.
The cost base includes not only the purchase price of the property but also the associated fees such as stamp duty and legal costs.
A capital gain is the increase in an assets value over time. If you sell a property for a greater amount than the cost base then you will have made a capital gain.
On the other hand if the sale price is less than the original cost base then you have made a capital loss.
COST BASE – SALE PRICE / DISPOSABLE
Calculating Capital Gains Tax
To calculate Capital Gains Tax, the amount of capital gain is added to the amount of taxable income received from an investment property. This total amount of profit is then taxed at the marginal tax rate. However, if you have owned the property for longer than one year, only 50% of the capital gain will be added to your taxable income.
Not all property sales are subject to Capital Gains Tax. This tax doesn’t apply to the primary place of residence or family home. It’s also possible to rent out a primary place of residence for up to 6 years without paying Capital Gains Tax.
CAPITAL GAIN + TAXABLE INCOME RECEIVED FROM INVESTMENT PROPERTY TAXED AT MARGINAL TAX RATE
Top 3 tips to minimizing your capital gains tax payments owed
Although the Capital Gains Tax is fairly straightforward for property investors, there are a few ways to minimise payment owed;
1 – Maximise the original price/cost base of your property, be sure to include all legal fees stamp duty and any other incidental costs.
2 – Hold the property for 12 months and you’re automatically entitled to a 50% tax discount on any capital gain you make when selling the property.
3- Move in right away. As your primary place of residence is exempt from CGT moving in for the first 6 months you immediately qualify your property as our primary place of residence. However if you originally rented the property out then moved in at a later date you are still entitled to a partial exemption.
Chris buys a property and rents it out straight away.
2 years later he moves in and lives in the residence for 6 years before selling the property and makes a capital gain of $200,000.00.
Chris only has to pay a CGT on the one quarter of that amount. Which is the 2 years the property was rented, out of the total 8 years he held the property for.
Therefore his total taxable income amount is only $50,000.00. Even better because he has held the property for more than 12 months he is able to reduce this by 50% leaving him with a total taxable income of only $25,000.00.
If you would like to know more about capital gains tax give us a call on 02 49291122 or request an information package by emailing firstname.lastname@example.org