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  • Appendix 5: Example of sale 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

    In his own right, Brett purchases 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 rents 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

    Total

    $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 upon the sale of the property totalled $12,500.

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

    Purchase price of property

    $150,000

    Stamp duty and solicitors fees on purchase

    $20,000

    Capital expenditure (initial repairs)

    $2,500

    Capital expenditure (major structural repairs)

    $30,000

    Real estate agents fees and solicitors fees

    $12,500

    Total

    $215,000

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

    Proceeds from selling the house

    $500,000

    Cost base unindexed

    $215,000

    Total

    $285,000

    Brett shows $285,000 at label H-Total current year capital gains in item 17.

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

    $285,000 × 50% = $142,500

    Brett shows $142,500 at label A item 17.

    Download a copy of Brett's worksheetThis link will download a file here.

    Last modified: 31 Aug 2010QC 16195