Loss v Gain

Question

We’ve just sold an investment property for $345k in March 2010 (purchased Dec 07 for $350k/borrowed $370k). After fees & charges we have a capital loss of $31k. We have another investment property which we are considering selling & want to know is there any advantage in selling that in either this financial year or next? Details for this property are: purchased in Jan 07 and was PPOR until Dec 07 when we moved up north for work and was in a company rental property until Sept 2009, during this time we rented out our PPOR until this day. As when I was transferred back to Perth in Oct 09, we purchased our new PPOR. This investment property was purchased for $485k/Jan 07, now appraised at $510k with a mortgage of $265k. Would any capital gain on this place be offset by our $31k loss we hold & at what point would capital gains be applicable for this property i.e when we moved out in Dec 07 or when we purchased our new PPOR in Oct 09?

Answer

Yes, you would be able to use your capital loss to offset the gain on the other rental property and as it appears the loss will exceed the gain it makes no difference which year you sell it in. Though as this property was originally your home then its cost base will be reset at market value when you first rented it out so the figures maybe slightly different, you may also have some building depreciation that has to reduce your cost base.
Maybe sell sooner than later so you can use the equity to pay off the non deductible debt on your new home. The question is will it increase in value if you keep it?

Assuming you only have the properties you list in this question then before you purchased your current home there was nowhere other than the rental property to park your main residence exemption. Certainly from the date you moved into your new home that is where you want your main residence exemption to be, considering there is no or very little capital gain you want to avoid on the rental/home and who knows what the future holds for your new property.

You need to crunch the numbers on this rental that used to be your home, taking into account its market value at Dec 07. I think it maybe a capital loss after selling costs, even before you take into account your carried forward capital loss. If that is so you could increase your carried forward capital loss by not protecting it with your main residence exemption. Fortunately, if you are not actually living in a property you have a choice as to whether you cover it with your main residence exemption or not, even though you are not utilising it on another property.

In direct answer to our question it is your choice as to whether the capital gain or loss is calculated from when you moved out in Dec 07 or when you purchased the new PPOR in Oct 09. If it is a capital gain then choose Oct 09 if a capital loss choose Dec 07. The CGT calculation will be the market value at Dec 07 plus selling costs, add back depreciation etc deducted from the selling price. This gain (or loss) is then apportioned on a per day basis between days covered by you main residence exemption and days not.

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