Taxation: Capital Loss Rules and a property as a Primary Residence

Ldefiant on 03/11/2016 - 20:03

Hi Everyone,

Not sure if anyone can help me out here, but trying to decide if I should move back into my apartment, and what I need to consider when selling with regards to a capital loss scenario.

History of the apartment and my residency status within it:

  • Bought 9 years ago as a first home-owner
  • Lived in it for 2 years
  • Rented it out for 3 years
  • Lived in it again for 2 years
  • Rented it out for the past 2 years, currently have tenants there who are happy to continue living there
  • Property is now worth 10% less than when I bought it (unfortunately, therefore I would realise a large capital loss if I sold today)

My understanding is that if I move back in now and sold it with a capital gain, I would received the 50% discounted capital gains tax exemption.

I also believe that whenever one incurs a capital loss, you can keep carrying it forward throughout subsequent tax years and offset it against a capital gain.

My question is this: If I moved back in to the apartment, (therefore it definitely becomes my primary residence) then sold it and made a loss, would I be eligible to carry forward this loss through future tax years? Does it make a difference if I continued to keep the tenants there (therefore it is definitely an "investment" property)?

Many thanks

Financial

Comments

  • mick123 on 03/11/2016 - 20:33
    +1

    I have not heard of a place in Australia where property has declined in the last 10 years - where is this?

    • foxmulder on 03/11/2016 - 20:43

      He might bought property much higher than should, then adjusted down.

    • tonka on 03/11/2016 - 21:24

      Maybe some mining ex-boom town.

    • tunzafun001 on 04/11/2016 - 09:40

      Ummm, outide the Mel/ Syd CBD bubble there are plenty.

      Here are 120 postcodes to kick off:

      http://www.news.com.au/finance/real-estate/buying/nab-blackl…

      On the positive side a 4 bed, 2 bath, house (with pool) near the beach/ shopping and 5 min drive to work will set you back around $200k in my neighborhood.

      • tonka on 04/11/2016 - 16:54

        Tease, where is this? And when you say drive to work or there jobs there?

        • tunzafun001 on 04/11/2016 - 18:24

          Whyalla, jobs are there for the right people. But with the steelworks situation it's tough times for tradies. A few bank foreclosures around.. Poor buggas.

    • defiant on 06/11/2016 - 12:54

      Apartment in inner city Perth, I bought at the top of the mining boom and in addition to adjustments after the boom, there is now an over supply of 2 bed apartments

  • lime111 on 03/11/2016 - 21:15

    edit.

  • tonka on 03/11/2016 - 21:28

    OP I think there is a calculator on the ATO website somewhere. You may find it was your primary residence even when you weren't living there and the capital gains/loss exposure is not much.

    • defiant on 06/11/2016 - 12:54

      Thanks I'll look this up

  • djkelly69 on 03/11/2016 - 22:00
    +2

    Really seems like a "talk to your accountant" question…

    • defiant on 06/11/2016 - 12:57

      Fair call, will do this asap cheers

  • s3n on 03/11/2016 - 22:45

    I am not an accountant but a few things to take note:

    If this is your only property and is hence your main residence, you can choose to be CGT exempt for 6 years at a time:

    https://www.ato.gov.au/General/Capital-gains-tax/In-detail/R…

    But the key word is choose, so you could possibly claim a loss as per below

    If you own another residence, and you are claiming this apartment as your PPOR for the time you lived in it, then there would be some apportioning to do between the periods that you resided there and those that you rented it out

    https://www.ato.gov.au/General/Capital-gains-tax/In-detail/R…

    For instance, to make the calculation simple, if you resided there for 50% of the time you have owned it and you own another property, you could claim 50% of the capital loss if you sold it

  • s3n on 03/11/2016 - 22:52

    Now as for apportionment, I'm under the impression it's not just a percentage, if there are multiple periods, you'd need to get a professional valuation for the start and end date of each rental period.

    http://www.smartcompany.com.au/finance/tax/48417-asset-valua…

    Actually not that clear-cut so could just use internet values

    https://www.ato.gov.au/General/Capital-gains-tax/In-detail/C…

    • defiant on 06/11/2016 - 12:59

      Thank you very much, helps me out to know that it is actually quite complex. Will speak to my accountant asap

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