Claiming purchase costs for IP?

[Spotted dog]

A quicky for the experts guys:

Can you claim any of the purchase costs involved when you first buy your IP?

Ie. when buying any property it usually costs about 6% (if you need mortgage insurance) and is made up of stamp duty, legals, conveyancing, etc, etc.

Can we claim any of these?

 

[MissMuffitt]

Yes you can claim all of that... I have been told that the mortgage insurance can be claimed over 5 years.
What I would like to know is if you can claim for the trip when you go to do your presettlement inspection?

 

[Spotted dog]

My understanding is that all trip expenses can be claimed for the purpose of obtaining the IP.

 

[letiha]

You can't claim your legals or stamp duty till you sell, however motrgage insurance and mortgage stanp duty can be claimed over 5 years or less if you refinance before then

 

[Spotted dog]

Cheers,

I've just confirmed my own qn?! The ATO has a number of guides on its website. You cannot claim purchase or disposal costs in its subsequent tax income years but you can include them when you sell as a loss as part of the CGT calculations. From how I read it, if you spend $15K to buy a property and $5K to sell it 5 yrs later, and the IP purchase price was $250K then total costs were $270K. If you sold for $400K you're liable for CGT on $400-$270K which is $130K less 50% (you've had it more than a year) so final CGT is calculated on $65K.

Does that sound right? Does anyone have any other clever (legal) ways to reduce this figure even more? Ie. my 'friend' is an IP mogul, has anywhere from 8-11 IP's at any given time but when he sells he offsets the CGT liability with the loss of another IP. Does that sound legal to anyone? I'm all for claiming what we can but would prefer to stay within the letter of the law....

 

[alexlee]

Does that sound right? Does anyone have any other clever (legal) ways to reduce this figure even more? Ie. my 'friend' is an IP mogul, has anywhere from 8-11 IP's at any given time but when he sells he offsets the CGT liability with the loss of another IP. Does that sound legal to anyone? I'm all for claiming what we can but would prefer to stay within the letter of the law....

That's a totally different thing to claiming purchase costs. Your friend is offsetting capital gains against income losses (hopefully depreciation, otherwise it's cash losses). Offsetting capital gains against cash losses isn't as good because obviously you have to fork out cash to get cash losses.

Making gains and paying tax isn't always a bad thing. Don't get too enamoured of tax reduction strategies and ignore the strategies that make you more gains in the first place.

There are easier ways to avoid tax: don't sell, for example, and you never pay CGT. If you then ask how you get your hands on the money, either do LOE, or borrow against the property to buy shares or other high-income products.
Alex

 

[Spotted dog]

Thanks, and pardon my ignorance, but what's LOE?

 

[alexlee]

Thanks, and pardon my ignorance, but what's LOE?

Living off equity. Basically you have a property portfolio that increases in value, and you borrow against the resulting equity to live on.

There are lots of posts on this.
Alex