Capital gains tax on investment property, if you’re an Illawarra property investor, you’ve probably faced—or will face—the prickly topic of capital gains tax (CGT). It’s one of those terms that strikes fear into the hearts of even seasoned investors – but fear not! Here’s everything you need to know about navigating CGT, minus the tax jargon overload.
What exactly is capital gains tax?
Let’s break this down. Capital gains tax is the tax you pay on the profit you make when you sell an investment property. If you bought a place in Wollongong for $500,000 and sold it five years later for $650,000—congratulations, you’ve made a $150,000 capital gain. But unfortunately, this gain doesn’t entirely belong to you; the ATO wants its slice of the pie too.
When do you have to pay CGT?
CGT comes into play only when you sell your investment property. It’s crucial to remember that your primary residence—where you actually live—is exempt from CGT. Investment properties, however, are fair game.
But here’s a bonus—if you hold your investment for more than 12 months, you’ll receive a generous 50% discount on the capital gain. Suddenly, selling that Shellharbour apartment after a year or two seems even more appealing, doesn’t it?
Calculating your CGT: Easier than you think
The math behind capital gains tax can seem daunting at first glance, but it’s manageable with the right approach.
To work it out:
| Take your sale price.
| Subtract the original purchase price.
| Deduct any eligible expenses, like legal fees, stamp duty, and property improvements (think new kitchens or bathroom upgrades).
| If you’ve held the property longer than a year, apply that lovely 50% discount.
Whatever figure you’re left with, that’s your taxable capital gain.
Smart ways Illawarra investors can reduce CGT
Reducing your CGT liability is perfectly legal—and very wise. Here are a few savvy moves:
Keep thorough records
Track all your property expenses meticulously. Receipts for renovations or maintenance can significantly lower your taxable gain. Even a humble paint job counts.
Strategic selling
Time your property sale wisely. If your income drops in a particular financial year—perhaps you’re taking a career break or retiring—that might be the perfect moment to sell. Lower income means a lower tax bracket and potentially a smaller CGT bill.
Consider your ownership structure
Buying property under a company, trust, or with your partner can make a huge difference in your CGT obligations. It’s worth consulting a tax expert to see what structure works best for your circumstances.
What happens if you incur a capital loss?
No investor wants to lose money, but there is a small consolation: capital losses can offset your future capital gains. If your Warilla unit sells for less than its purchase price, you can carry forward that loss to reduce CGT on future profitable investments.
Local market trends matter
Understanding Illawarra’s property trends can help you decide when to sell. If prices in suburbs like Kiama or Bulli are peaking, it could be the ideal time to cash in, despite the CGT—because sometimes, a hefty profit outweighs the tax implications.
Need some local insight?
Navigating CGT doesn’t have to be painful. If you want tailored advice or help crunching the numbers, the Dimosons Team knows Illawarra real estate inside out.
Ready to tackle CGT head-on?
Don’t let the taxman scare you out of making profitable decisions. With clear planning and strategic moves, capital gains tax becomes just another manageable cost of successful property investing.
Contact Dimosons now and make the most out of your investment property.
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Capital gains tax on investment property: What Illawarra investors must know | Dimosons Real Estate
