Question: I have owned an apartment for the last two years, and have recently rented it out to go back to university overseas to complete my degree. I am now considering buying another property (most likely early next year) as an investment property with the vision to move into this second property after around a year. My question is: can I claim stamp duty and other initial costs on the second unit, as it is an investment property, if I am going to move into it about a year after when I return from overseas?
Answer: Stamp duty and initial costs of purchasing an investment property are usually part of the cost base of the property.
These costs are added to the purchase price of the property and have the effect of reducing any capital gain when the property is sold. Unfortunately, you are unable to claim the stamp duty and other initial costs as an outright deduction.
It is important to note that you intend to occupy the house after returning from overseas. In this case the property will most likely revert to your principal place of residence. As a result any capital gain that may apply upon the selling of the property would need to be apportioned between the time the property was leased and the time the property was used as the principal place of residence.
For example (all figures assumed):
Purchase price in 2011 $400,000
Stamp duty and other initial costs $ 20,000
Total cost base $420,000
Property sells in 2015 $540,000
Capital gain $120,000
As the home was the principal place of residence between 2012–2015 the main residence exemption will apply for three of the four years that the property was held. Therefore, Capital gain after the exemption is $30,000 ($120,000/4).
A discount of 50% applies to the resultant gain and therefore tax will be paid on $15,000 at your marginal tax rate.
- Answer provided by Dom Cosentino, Kennedy & Co Chartered Accountants. (kennedy.com.au)
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