News

There’s no denying that it’s a seller’s market right now. But a word of caution for those tempted to cash in!

There’s no denying that it’s a seller’s market right now. Properties are in demand and sold prices are pushing record highs.

But a word of caution for those tempted to cash in! If you are an investor and have toyed with the idea of selling your investment property to renovate a kitchen or bathroom at your primary residence make sure you do your sums!

Why? Well, without realising it, selling your investment property may incur a capital gains tax (CGT). It’s a tax you pay on profits from selling assets. You report capital gains and capital losses in your yearly income tax return and pay tax on your capital gains. Although it is referred to as 'capital gains tax'; it is part of your income tax.
It is not separate.

If you have a capital gain, it will increase the tax you need to pay. The bill at tax time could come as quite a shock if CGT is not taken into consideration at selling. It is important to speak to your accountant or do your research on the ATO website to determine how much your capital gain may be.

If a renovation, holiday or expense requires finance, consider borrowing against the equity in your primary residence. Not only will this mean you avoid paying CGT, it will keep you in the property market ensuring you can continue to grow equity if values continue to increase.

Remember, home equity can also be used instead of a cash deposit to buy an investment property – and this may be tax deductible too, along with any repairs and bills associated with the maintenance of the property!

Selling right now could make a tidy profit for some in the short term, but to re-enter the investment market down the track could prove to be much harder given market conditions and potential purchasing expenses such as stamp duty, lenders mortgage insurance, legal fees and real estate agent's fees!

Now there’s some food for thought.

*Always seek specialist advice from a trusted financial advisor.
* Source here.