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Appendix 5: Example of sale of a rental property

Last updated 30 August 2010

In his own right, Brett purchases a run down rental property on 1 July 1997. The price he paid was $150,000 plus $20,000 in total for stamp duty and solicitors fees.

He rents out the property after spending $2,500 on initial repairs.

In the next few years, Brett incurred the following expenses on the property:

Interest on money borrowed

$10,000

Rates and land tax

$8,000

Repairs

$15,000

Total

$33,000

As it was an old property, there was no special building write-off Brett could claim.

When Brett decided to sell the property, a real estate agent advised him that if he spent around $30,000 on major structural repairs, the property would be valued at around $500,000. He had the repairs done and put the property on the market. On 1 April 2001 he sold the property for $500,000.

Brett's real estate agents fees and solicitors fees upon the sale of the property totalled $12,500.

As this is Brett's only capital gain for this year-and he has no capital losses to offset from this year or previous years-he works out his cost base as follows:

Purchase price of property

$150,000

Stamp duty and solicitors fees on purchase

$20,000

Capital expenditure (initial repairs)

$2,500

Capital expenditure (major structural repairs)

$30,000

Real estate agents fees and solicitors fees

$12,500

Total

$215,000

Brett deducts his cost base (expenses) from his capital proceeds (sale price).

Proceeds from selling the house

$500,000

Cost base unindexed

$215,000

Total

$285,000

Brett shows $285,000 at label H-Total current year capital gains in item 17.

He decides the discount method will give him the best result, so uses this method to calculate his capital gain.

$285,000 × 50% = $142,500

Brett shows $142,500 at label A item 17.

Download a copy of Brett's worksheetThis link will download a file here.

QC16195