It is important to discover how you can avoid capital gains tax when you plan to sell your investment property. It is because it will help you save thousands of dollars. You may refer to the tax depreciation tables 2015 as you prepare your depreciation report annually. Many first-time property investors may get overwhelmed when they have to pay capital gains tax on their investment. Now you need not worry anymore as there is some respite for all the first time property investors. Read the points below to bring down the amount of capital gains tax and how you may avoid paying it altogether.
What is CGT?
After you have sold the property, the difference between how much you paid for the property, and how much you sold it for will be termed as capital gains. For instance, if you lost some money on the sale of your asset, the difference will be known as capital loss. If you registered some profit, it will be classified as capital gain and you will be required to declare it on your annual income tax return. You may hire professional tax depreciation surveyors in case you find it difficult to calculate your taxes.
When will CGT become payable?
You need to pay Capital Gains Tax or CGT when you sell your investment property if you purchased it after September 20, 1985. The gain achieved from the property sale will be added to your income tax return for the particular income year. The capital gain on your investment property sale may take you into a new tax bracket. And, in such a scenario you may have to pay a hefty amount of income tax for that specific financial year. You can seek help from professionals to prepare your strata property act depreciation report.
You may avoid paying capital gains tax with these steps:
Principal place of residence exemption: You can ignore capital gains tax while selling your investment property in the case that property is your Primary Place of Residence or PPOR. The rule is in place as you generally do not produce an income from residing in your own property. Therefore, you are not required to declare any profit on your house sale in your yearly income tax return.
Tips to avoid capital gains tax while selling your investment property: The 6 year rule established by CGT lets you use your PPOR as an investment by renting for a period of up to 6 years. The 6 year rule by CGT has influenced homeowners who are keen to make some additional money for the duration when they are not able to stay in their home.
Similarly, you can also avoid capital gains when selling your investment property with a self-managed superannuation fund or SMSF. SMSF has emerged highly appealing to property investors as SMSF can borrow money to buy a property. You will come across plenty of tax benefits if you buy your investment property via an SMSF. You need to calculate your tax depreciation lives annually. It is worth noting that the SMSF will be required to pay a 15% tax rate on rental income from the property. If you retain the property for over 12 months, the tax rate will decline to 10% from 15%. And, you can enjoy a 33% discount on your CGT upon sale of the property.