Are you thinking of selling an investment property?

12th October 2014

Main thing to consider from a tax perspective is depreciation recovery.  If you have previously depreciated buildings (this stopped from 1/4/11), then when you sell a rental there is a chance you will have to recover some of this depreciation and pay tax on the recovery.  If the building has increased substantially in value, then you will recover all the previous building depreciation claimed and there isn’t too much we can do about it.

But if your building value has dropped or is around the same, there might be an opportunity for us.  So the best thing to do is talk to me before selling and we can look at putting a clause in the Sale and Purchase Agreement.

But if you haven’t talked to me beforehand, don’t just assume all the building depreciation will be recovered.  We just had a great example today where, based on the rating values, there would be $24,000 building depreciation to recovery.  But we checked with the client and they had a recent registered valuation completed, so these values for land and building are more correct.  Using the correct recent valuation values, resulted in no building depreciation recovery and saved the client around $7,500 in tax!

Second major consideration from a tax perspective is, does the sale attract tax?

For most buy and hold investors, there will be no capital gain tax.  But if you are a builder, property trader or developer, or associated to any of these, then there could be capital gains tax and it is best to discuss with me.  If you have subdivided and sold a property, the starting position is that the capital gain is taxable, but there are many exemptions that can mean tax is not payable.

Also, if you have purchased and sold properties within a short term, especially if there is a pattern of buy, do up and sell within a short period, then there is a risk that IRD could consider this “trading properties” and subject to Income Tax and GST.  If you are in this situation, please discuss with me, as I can often set your mind at rest or plan around the tax consequences.

Recent seminar and information available for clients

We held a seminar last month on Fine Tuning your Rental Portfolio which especially focused on identifying under-performing properties.  We can provide Coombe Smith clients with slides from the event and also a worksheet that can be used to rank your properties and help to identify the under-performing ones.

Free Seminar from Waikato Property Investors Association – 14October

I’ll be speaking at “Getting a Leg Up on the Property Ladder” on Tuesday night.  For more information click here.

New to property investment or considering investing for your future?  This practical (1.5x hour) workshop will cover proven investment strategies and success tactics (from experienced investors and professionals).

Topics to be covered:

- Buy & Hold
- Minor Dwellings
- Renovating
- New Builds
- Trading
- Rental Options
- Provincial Investments

Kind regards
Ross Barnett