Tax deductions for vacant block on eventual sale

Hi there

Buying a vacant 1 acre country block as a possible retirement home site. But odds are we will sell block in 4-5 years and hopefully make a slight capital gain after retiring somewhere else. But buying it at a good price.

If I understand this correctly I should borrow the money for this block rather than use my own, so that on the sale I can then deduct the loan borrowing costs and 5 years interest. Is this correct?

Secondly can I deduct 5 years rates, and stamp duty and legal fees on purchase, legal fees on sale and agents commission when calculating CGT?

Thirdly if I travel 250 kms return 12 times a year to transport a ride on lawn mower to maintain this block * 5 years can I claim this?

Fourthly if I apply for a planning permits for house construction, septic system, and driveway and culvert at a cost of 1000 are these deductable? Having planning approval will increase sales value and chances of making a sale.

Fifthly if I pay 3500 for power connection and 10000 for driveway and culvert to VicRoads requirements are these costs deductable?

Finally if all or most of the above is deductable then we are likely to make a loss and have no CGT liability. Can this loss be deducted from a Capital Gain on another investment property?

Any advice would be greatly appreciated

Have a good day
Kevin
 
Finally if all or most of the above is deductable then we are likely to make a loss and have no CGT liability. Can this loss be deducted from a Capital Gain on another investment property?

If you're not going to make money out of it, why buy it at all?
 
Hi there

Buying a vacant 1 acre country block as a possible retirement home site. ...

If the intention for the block is to build a house to live in yourself, and NOT a house to produce income, then no expenses will be tax deductible. Nada. Zip.
 
Costs are non-deductible for a personal asset that does not derive income. It remains a CGT asset.

All the ownership costs may reduce the future capital gain. The final capital gain may likely be eligible for the 50% reduction. Vacant land is eligible for the main residence exemption.

Therefore for each $ sent to maintain and own prior to sale for which no deduction is claimed would provide a reduction of 50% to the final gain - Then taxed at your marginal tax rate. The probable estimated tax rate of each $ of net profit would eb less than 25% as a guide.
 
You are holding land that is not for gaining or producing assessable income.

Even if you argue that a future capital gain is assessable income, s.51AAA ITAA36 prevents deductions that relate exclusively to a capital gain.

Land is not a personal use asset for CGT purposes (s.108-20) and so you may also take into account a capital loss.

Certain capital and holding costs may be capitalised into the cost base of the land. For example your capital improvements are part of the fourth element. Holding costs like rates, interest and maintenance form part of the third element of the cost base but may not be used in calculating a capital loss.

Be sure to keep documentation for costs, do not just estimate the number of journeys for mowing etc.

In case you are considering, merely renting out the vacant block for agistment will not allow full deductions for holding costs of the land, but a partial deduction may be available.
 
CGT and deductions

Thanks for the replies, I am trying to make sense of them.

Appreciate your efforts

Have a good day
Kevin
 
Thanks for the replies, I am trying to make sense of them.

Appreciate your efforts

Have a good day
Kevin

My basic understanding (I'm not an accountant) is that vacant land is not eligible for any tax deductions - so you can't claim interest etc.

I think the exception to the rule MIGHT have been if you bought the land, got a building license to build a rental but then didn't go through with building due to some reason or other. Because the intent was to build an IP it MIGHT then be allowed.
 
No, holding costs for vacant land can be deductible depending on the circumstances. 'Steele' is the caselaw for this.
 
No, holding costs for vacant land can be deductible depending on the circumstances. 'Steele' is the caselaw for this.

Sorry yes I did explain that poorly.
Buying vacant land, never building or intending to build, landbanking and selling as land for profit is what I believe is no deduction.
 
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