Video transcript - Selling your rental property
So you’ve decided to sell your rental property. One thing’s for sure…. you’ll need to work out if you’ve made a capital gain or a capital loss but what does that mean?
Well, a capital gain is when you sell the property for more than it cost you.
A capital loss on the other hand is when you sell the property for less than it cost you.
But what’s the cost of a property? Well, it’s the amount you paid for it plus certain costs associated with buying, holding and selling it; such as legal fees, stamp duty, and selling agent’s commission.
Some amounts are excluded from the property’s cost; for example deductions you’ve already claimed for building costs.
Phil has reminded me that you can generally reduce your capital gain by 50% if you’ve owned the property for 12 months.
Yes, but it’s the sale contract dates that are usually critical, not the settlement dates. So make sure that t contract dates have at least 12 months between them.
Oh, and the contract date also determines the year I declare the capital gain in my tax return.
When you sell your rental property you’ll need to reasonably divide up the sale price between the property and any depreciating assets in the property. This is because there are separate tax consequences for each.
So let’s see how Phil and Sarah did on their investment.
After taking away the depreciating assets, the house and land cost us $500,000 and we sold it for $760,000.
It was rented out for the whole 10 years that we’ve had it and we’ve kept records from the start so it was easy to work out the costs. Apart from the cost of the property there were solicitor fees, stamp duty and initial repairs. We also built a carport. And then there were the sale costs – like marketing and estate agent’s commission. And after deducting building costs, that all came to $60,000.
So, your sale proceeds were $760,000, less costs of $560,000– which is the initial price of the house and land plus other costs and that left you with a capital gain of $200,000. Not a bad investment?
That’s right. And because we owned the property equally, that came to $100,000 each.
And let's not forget the 50% discount! We were able to halve our capital gain even further to $50,000 each.
One more thing. If the rental property was your main residence for part of the time you owned it or if it was your main residence and you rented out a part of it, you may be entitled to a partial exemption from capital gains tax.
We’ll look at that in the next video in our series.
If you’d like to find out more and to watch other videos in the series go to ato.gov.au/rental
When you sell your rental property, you may have to pay tax on any capital gain you make on it. This video explains what is a capital gain or loss, how it’s calculated, and eligibility for the 50% discount.