• 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 $2500 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 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

     

    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

     

    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 x 50% = $142 500

    Brett shows $142 500 at label A item 17.

    Download a copy of Brett's worksheet here.

    Last modified: 31 Aug 2010QC 16195