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Whether you have one investment property or one hundred, the decision to offload one can be a hard one to make. But you want an investment property to be an asset, not a burden, on your finances - so if it’s no longer profitable or there are other circumstances at play, it could be time to sell.
If you’ve decided it’s time to sell your investment property, it’s important to go in with a plan so you can save on taxes and ensure the process runs as smoothly as possible.
When should you sell your investment property?
Maintaining an investment property can be costly, and if your circumstances have changed it could be a good idea to sell and free up some extra cash. If you’re unsure about selling, here are some common situations where it can be a good idea to sell.
Retirement
Many investors decide to sell their investment property/properties in order to free up capital for their retirement, as selling an investment property after retirement can impact Age Pension entitlements. It can also help fund travel, renovations on your home, as well as give you a nice financial cushion to rely on.
Underperforming property or market
If the market in your particular area has come to a standstill, or the potential for capital growth is weak and the property is negatively geared, it may be wise to use your equity elsewhere.
Access to cash flow
Selling your investment property can be a good way to improve your cash flow, particularly if you need the money for something in your life or just want to redirect the cash towards a better investment.
You want to access a Capital Gains Tax exemption
If the investment property was initially your primary place of residence, you may be able to sell it within six years of moving out without paying Capital Gains Tax (CGT). This is called the six-year rule.
Do you have to pay Capital Gains Tax (CGT) when selling your investment property?
You will either make a gain or a loss when you sell your investment property. If you make a profit, this is known as a capital gain, which will likely be taxed. But if you make a capital loss, you won’t have to pay CGT. The loss can then be used to offset future capital gains.
There are some CGT exemptions for investors, such as the six-year rule. Most investors won’t be eligible for CGT exemptions but can qualify for a discount. For example, if you’ve held the property for more than 12 months you are eligible for a 50% discount.
Regardless of whether you’ve made a capital gain or loss, you must report this in your income tax return as part of your assessable income.
Ready to buy your next investment property?
If you’ve sold your investment property and want to put that cash towards a better investment property, we offer competitive deals for investors. We’re here to help as little or as much as you need, and most importantly, save thousands on your investment loan.
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