• Appendix 5-example of a rental property

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Example

    Sale of a rental property

    In his own right, Brett purchased a run down rental property on 1 July 1997. The price he paid was $150,000 plus $20,000 in total for stamp duty and solicitors fees.

    He rented out the property after spending $2,500 on initial repairs.

    In the next few years, Brett incurred the following expenses on the property:

    Interest on money borrowed

    $10,000

    Rates and land tax

    $8,000

    Repairs

    $15,000

    $33,000

    As it was an old property, there was no special building write-off Brett could claim.

    When Brett decided to sell the property, a real estate agent advised him that if he spent around $30,000 on major structural repairs, the property would be valued at around $500,000. He had the repairs done and put the property on the market. on 1 April 2001, he sold the property for $500,000.

    Brett's real estate agents fees and solicitors fees for the sale of the property totalled $12,500.

    This is Brett's only capital gain for this year-and he has no capital losses to offset from this year or previous years. Brett works out his cost base as follows:

    Purchase price of property

    $150,000

    Stamp duty and solicitors fees on purchase of the property

    $20,000

    Capital expenditure (initial repairs)

    $2,500

    Capital expenditure (major structural repairs)

    $30,000

    Real estate agents fees and solicitors fees on sale of the property

    $12,500

    Cost base unindexed

    $215,000

    Brett deducts his cost base from his capital proceeds (sale price).

    Proceeds from selling the house

    $500,000

    Cost base unindexed

    $215,000

     

    $285,000

    Brett shows $285,000 at H Total current year capital gains at item 17 on his tax return.

    He decides the discount method will give him the best result, so he uses this method to calculate his capital gain:

    $285,000 x 50% = $142,500

    Brett shows $142,500 at A item 17 on his tax return.

    Download Brett's capital gain or capital loss worksheet here.

    Last modified: 06 Oct 2009QC 27417