Selling a property that has served both as a rental and a residence can present a myriad of capital gains tax (CGT) challenges. These issues often call for astute decision-making in utilising CGT concessions effectively.
Imagine retaining your original home post-purchase of a new property, opting between securing a full CGT exemption on the former or maximising exemptions for the latter. However, strategic planning can sometimes allow you to enjoy the best of both worlds.
On the flip side, transitioning from renting a property to residing in it can limit the availability of certain CGT concessions. Understanding these rules becomes crucial, especially in scenarios where the property’s owner passes away, and beneficiaries later sell the property. With meticulous planning, favorable outcomes can be achieved.
Calculating partial capital gains or losses on a property used for both rental and residential purposes can be intricate. Factors like determining market value costs and accounting for non-deductible expenses, including mortgage interests, come into play.
Moreover, considerations arise around write-offs claimed, potential reversals, and the eligibility of partial gains for the advantageous 50% CGT discount. Interestingly, the CGT discount for partial exemptions on homes stands out as one of the government’s most significant revenue concessions.
For those contemplating the purchase of a property intended for dual rental and residential use, careful planning is essential. Living in the property genuinely initially can grant you a concession to maintain its full CGT exemption for up to six years. Subsequently, if rented for an extended period, leveraging a market value cost at the onset of renting can aid in calculating partial gains.
Conclusion
The complexities surrounding CGT issues when selling a property with mixed rental and residential use underscore the importance of leveraging concessions wisely to minimise potential tax liabilities. If you find yourself in such a position or are considering a property with mixed-use potential, feel free to contact us for a personalised consultation.
