Should I sell?

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From: Tony Donnell


Hi Everyone,
Seven years ago I built a duplex.
I kept one and now own it without a mortgage.
Today it would sell for around $380,000 to $400,000.
This unit was my primary place of residence for the past 7yrs.Last September
I built a new house and moved in.
I rent the unit out for $275 per week.
My accountant told me if I was to sell the unit now I would pay next to nothing capital gains or tax.
My question is considering I have a mortgage of $220,000 on my new home,should I sell the unit and pay out the new mortgage?
I was told that in the future be it 3yrs or 10yrs when I sell the unit I will pay capital
gains tax.This capital gains will be a considerable amount.
Not to forget the extra interest I will be
pay over the years on my PI home loan.
Any comments will be appreciated.
Thanks guys,cheers Tony
 
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Reply: 1
From: Dale Gatherum-Goss


Hi Tony

Ignoring the "should I sell" question for a moment - I hope that your accountant suggested that you arrange a valuation of your unit at the time that you moved out and it was no longer your PPOR.

As for should you sell, I've often suggested that to do so is to give away a large portion of your wealth for no real advantage. Sure, the interest on your PPOR mortgage is not tax deductible, but, how much would you lose to rearrange your finances, and for what return?

Dale
 
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Reply: 1.1
From: Luke W


Hi Dale,

Two thoughts: (not withstanding your advice... never,never,never sell :) )
1. I thought you recently quoted the tax act that you can sell PPOR up to 6 years after leaving it without incurring CGT?

2. If he did sell, say after three years, is it also possible to simply apportion 3/10 of the capital increase as requiring tax to be paid. (7 years PPOR status, 3 years not)

Are these thoughts correct? And thanks for your expertise.
regards,
Luke
 
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Reply: 1.1.1
From: Mike .


Hi Tony,

The rental yield on your unit is very poor at around 3.7%. After management fees and other sundry costs are deducted plus whatever left is taxed, the cash flow from this unit probably won't cover the non deductible interest portion of your PPOR repayments. Current upward pressure on interest rates will make P&I repayments more costly.
<p>
Since the current property cycle is all but over I'd be selling now before too many other properties go on the market putting downward pressure on the value of your unit. Buy low, sell high. If you sold now you would make maximum profit. Plus no CGT. The decision is not difficult in my mind.

Regards, Mike
 
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Reply: 1.1.2
From: Dale Gatherum-Goss


Hi Luke

>1. I thought you recently
>quoted the tax act that you
>can sell PPOR up to 6 years
>after leaving it without
>incurring CGT?

That is correct.

>2. If he did sell, say after
>three years, is it also
>possible to simply apportion
>3/10 of the capital increase
>as requiring tax to be paid.
>(7 years PPOR status, 3 years
>not)

No, the first thought is correct. If he sells after the 6 years expires he will pay CGT on the gain. This is calculated as sale price less costs of sale less market value at the time the property ceased to be the PPOR.

Cheers

Dale
 
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Reply: 1.1.2.1
From: Donna L


I'd talk to Steve Navra. There may be a
way to keep the property and still pay the
home loan out in a very tax effective
manner whilst adding to the portfolio.

Donna L
 
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