Hi everyone
A question on tax treatment at the time of sale of an Inv Prop.
Let's say you are in the following scenario. When you purchased the Inv Prop you put in equity of $50 (incl costs). The loan against the asset has not been amortised / paid down since the purchase. When you sell it, you get $100 of equity back (net of costs and after paying down the loan but prior to the break fee on the loan as the loan is on a fixed rate). There is a $5 break fee on the loan. So the net cash back to you is $45.
1. What is the capital gain in the above scenario? Is it simply $45 (ie the net cash back) or is the capital gain $50 and does the $5 break fee go as a deduction against income (as opposed to on capital account)?
2. Let's say when you set up the loan against the Inv Prop you had $5 of loan costs (including LMI). My understanding is that these are not an upfront tax deduction but you can claim them against your tax return over 5 years (so $1 a year of tax deduction against income). Let's say when I sell the Inv Prop, I only have deducted $2 of the $5 to date. Does the remaining $3 provide me with a tax deduction against income or does it go towards a capital loss or is it lost forever?
3. The Inv Prop has a managing agent (property manager). Do I have any obligations towards that property manager when I sell the unit? That is, will the existing property manager transfer across to the new purchaser until the end of the tenant's current lease or do I need to pay the property manager out? If I have to pay the property manager out, can I claim this as a deduction?
Thanks very much in advance for any assistance!
Cheers
A question on tax treatment at the time of sale of an Inv Prop.
Let's say you are in the following scenario. When you purchased the Inv Prop you put in equity of $50 (incl costs). The loan against the asset has not been amortised / paid down since the purchase. When you sell it, you get $100 of equity back (net of costs and after paying down the loan but prior to the break fee on the loan as the loan is on a fixed rate). There is a $5 break fee on the loan. So the net cash back to you is $45.
1. What is the capital gain in the above scenario? Is it simply $45 (ie the net cash back) or is the capital gain $50 and does the $5 break fee go as a deduction against income (as opposed to on capital account)?
2. Let's say when you set up the loan against the Inv Prop you had $5 of loan costs (including LMI). My understanding is that these are not an upfront tax deduction but you can claim them against your tax return over 5 years (so $1 a year of tax deduction against income). Let's say when I sell the Inv Prop, I only have deducted $2 of the $5 to date. Does the remaining $3 provide me with a tax deduction against income or does it go towards a capital loss or is it lost forever?
3. The Inv Prop has a managing agent (property manager). Do I have any obligations towards that property manager when I sell the unit? That is, will the existing property manager transfer across to the new purchaser until the end of the tenant's current lease or do I need to pay the property manager out? If I have to pay the property manager out, can I claim this as a deduction?
Thanks very much in advance for any assistance!
Cheers
