Selling Costs - How much left after fees?

[Pesty]

Hi all!

We are seriously thinking of selling our IP so we can buy locally and stop renting (IP is in another town as we have relocated). I have no idea how much the agents commission is, what fees and charges are payable etc. As IP was our PPOR until a year ago, I know that we are CGT exempt, but will have to pay whatever else is due. What about tax? Will the sale 'income' then be classed as taxable income and then we will be taxed on that at our marginal tax rate as well? The figures that I do know are as follows:

IP Value $270k - $300k (MYRP Date Report, last valuation at $285k in 2007. Ip is in Dubbo NSW.

Mortgage: $220k with a current balance owing of $216K.

Can anyone give me a ballpark figure based on the best and worse case sale prices (assuming IP sells at either $270k or $300) and average agents fees please? have I provided enough info for a calculation to be made? I have searched for calculators to work it out but can only find ones where all data must be entered. We need a minimum of $50k for a deposit on a PPOR of $400k (we already have $20k set aside for Stamp Duty and LMI etc).

If anyone can work out how much each scenario would leave us I'd be most grateful!

Regards,

Nicki

 

[RumpledElf]

I know that we are CGT exempt, but will have to pay whatever else is due. What about tax?

The T in CGT is tax. If the sale is tax exempt, you don't pay tax ...

You'd have to ring around local agents to see what they charge. If you're in the country, anything up to 6%. WAY less in the city. I found agent's fees varied enormously from agent to agent. Check with your bank for any break fees on the loan - these can range from $100 to thousands, can't say anything without knowing what loan type and how long you've had it so best to check. Conveyancer/solicitor charges vary with state - $1-2k give or take. Selling fees can get ridiculous - I worked out that for my old house just the selling fees pushed the house from being a profit to a loss if I sold it at the asking price.

 

[Pesty]

Thanks RumpledElf! When I referred to 'tax' I was talking about personal income tax, based on the sale proceeds being deemed as taxable income (I don't know how the ATO view sale proceeds?). Solicitor costs I hadn't thought of, I'm glad you mentioned it and the agents commission sounds like it'll take a fair chunk? As it's the weekend, I can't ring around and ask what the RE Commission is likely to be, but will find out through the week. The entire mortgage reverts to a Variable rate this November, we wouldn't consider selling before then as break costs would be high. $170k is fixed until then, break costs (last time I checked a few months back) were over $8k. When the loan goes variable, we will be charged a Deferred Establishment fee ($1000 for each part of the loan, it's Fixed and Variable now, not sure if it will change to 2 variable separate loans or 1 Variable?). There is also a Mortgage Discharge Fee of $90 per loan (once again, I don't yet know if the mortgage will be split or consolidated once the Fixed period is up?). So I'm assuming we would need more cash from somewhere if we need to raise $50k for our deposit once we've sold? Based on estimated selling costs, as you said, the costs are enormous!

Regards,

Nicki

 

[RumpledElf]

When I referred to 'tax' I was talking about personal income tax, based on the sale proceeds being deemed as taxable income (I don't know how the ATO view sale proceeds?).

You need to look up capital gains tax. Its exactly what you are describing. If you are exempt from paying capital gains tax because it was your main home, it isn't counted as income so you don't pay tax on it.

 

[Pesty]

OK, I understand what you mean now, I must look like a right idiot! Having never had to worry about CGT before, I didn't realize exactly what it was, just some government charge as far as I knew! So whatever $$ we receive from a possible sale, we take away the remainder of our mortgage and all costs/fees/charges and commissions, then what's left is ours? Do I finally have this scenario correct lol?

Cheers,

Nicki

 

[RumpledElf]

Since you're CGT exempt, that's pretty much it

If you have to pay you halve the profit you get if you've had it for a year and pay normal income tax on that. Less than a year you pay tax on the lot. All less expenses of course.

 

[Pesty]

Sweet! The IP in question was 'available to rent' for the last four months of the 08/09 financial year. We finally got tenants in from the 26th May 2009, they are still renting from us now (touch wood they stay put!). Our accountant, last year didn't do a Depreciation Schedule on the IP, so we got very little back in tax from the IP. Given that we built the IP in 2002, do you think it's worth getting a Dep Schedule done for this years Tax Return even though we are planning to sell in less than a year? We replaced the Air Conditioner (it cost us $3600 in Dec 2008) as it burnt out and we hadn't opted for fusion cover (we do now though!). We also replaced the carpet in the loungerom ($770) and replaced some blinds ($1200) in Dec 2008 as well. Are any of these expenses partly depreciable even though we incurred the expenses in preparation for rental, yet prior to letting the property? I have read that an accountant can amend a Tax Return up to 2 years to include a Schedule, is this correct? Sorry for all the questions, we are meeting with the accountant after the March Quarter is done for our quarterly review (Pest Control small biz) and I want to make sure we get what we are entitled to in our Tax Returns.

Thanks for your help!

Nicki

 

[RumpledElf]

That's out of my depth - I'm an 'accidental landlord' and my house has been top-to-bottom renovated quite recently (nothing older than 2005) and there's no depreciation schedule .. probably something I should look into before this year's tax time ...

 

[Pesty]

Yes, from what I've read, it's still supposed to be worth your financial while to do one if you have done a reno. Especially a really big one like yours. Or so the companies that do them say! Accidental landlord eh? I suppose we are too really, up and leaving our jobs/friends/family to move and start a new business in the middle of the GFC! I'm so glad we didn't listen to those that said we were stupid.....

Regards,

Nicki