Selling a property that has been used for both rental and residential purposes involve several capital gains tax (CGT) considerations. Here are some key points to keep in mind:
If you keep your original home and rent it out after buying a new one, you need to decide whether to retain the full CGT exemption on your original home or apply it to the new one. There are strategies that might allow you to benefit from both.
If you rent a property first and then move in, you might miss out on some concessions that could reduce your CGT liability.
Specific CGT rules apply to properties with mixed use when the owner passes away and beneficiaries sell the property later. These rules can be complex, but with good planning, they can lead to positive outcomes.
When calculating any partial capital gain or loss for properties used for both rental and residential purposes, you need to consider whether a market value cost can be used and account for non-deductible mortgage interest and other costs.
Keep track of any deductions claimed, like building write-off deductions, and whether those amounts need to be adjusted when selling the property.
Determine if any partial capital gain can qualify for the generous 50% CGT discount, which is a significant tax concession.
If you live in the property first, you might be able to keep its full CGT exemption for up to six years. If you rent it out for more than six years and later calculate a partial CGT exemption, you could benefit from a market value cost from when you first rented it.
In summary, selling a property with mixed rental and residential use involves several CGT considerations, including how to make the most of different concessions to lower your potential tax liabilities. If you’re in this situation or thinking about buying a property for mixed use, it’s wise to seek professional advice to navigate these complexities effectively.
