If you’re in the process of selling a house, chances are you’ve already got a million things to think about, let alone what you need to consider when tax time rolls around. To make things a bit easier, we’ve created a straightforward guide on how selling real estate can impact your taxes – including the new taxes you’ll need to consider, how to prepare for your tax return, and what you can expect from your tax refund.
Selling real estate: taxes to consider
The type of property you plan to sell will impact the taxes you can expect to pay. Here are some of the main taxes you’ll need to think about when selling real estate:
Capital Gains Tax
Capital gains tax (CGT) is a tax that is applied to the profits you make when selling an asset such as a house. CGT is calculated by the profit made on the sale of your home minus the costs of buying and maintaining the home (the cost base). Any profits made on the sale of a property need to be included in your assessable income in the financial year that you sell it.
Typically, you don’t need to pay CGT if you’re selling the home you live in. If you’re selling a second home or investment property bought after 20 September 1985, however, you’ll be liable for CGT if you made a profit off selling the property.
Although stamp duty is paid by the buyer and not the seller, it’s important to remember that it can have an impact on some buyers’ willingness to buy your property. If you live in an area with high stamp duty rates or your property has a high value, you might find your property stays on the market longer than expected.
When selling a property, you’ll need to apply for a land tax clearance certificate in your state. This document will state whether there is any land tax owing on your property, and protects the buyer from any outstanding tax liability.
How to prepare for a tax return when selling a house
During the financial year in which you sell a house, it’s important to remember that your tax obligations and deductions will change.
If you’re selling the home you live in, keep in mind that you might not be able to take advantage of tax breaks from previous years, such as mortgage interest deductions, property taxes, and renovation loan interest.
If you’re selling a rental or investment property, you should also make sure you’ve got everything organised ahead of tax time. Things to consider include:
- Your CGT date – CGT is calculated from the date of exchange of contract, not the settlement date – make sure you get it right so you only pay what you need to.
- Multiple property sales – if you plan to sell more than one property, selling those with a capital loss and capital gain in the same year can reduce your tax payable.
- Your income tax withholding – check if you need to adjust or cancel your income tax withholding variation.
Whether you’re selling your main home or an investment property, you might also be able to reduce your income tax by the amount of your selling costs, including repairs, title insurance, advertising expenses, and agent’s fees. Selling with Upside can make tracking costs easier because we cover the whole sales process within a single low-cost fee. Find out more about what is tax deductible when selling a home, and talk to one of our property agents to see how we can help with a cost-effective sale of your home.
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