Finally, someone provides a solid example!
You are right with everything you say here Fleeta. The tax,the purchase costs, the selling costs...all need to be considered in a property deal and all tend to conspire to screw you out of profits. All are reasons why many
property investors say: never sell. Drawdown on the equity you've accumulated or collatoralise against another purchase, but never sell. Although, you've identified one of two ways to solve this problem. One, CGT exception for primary place of residence. Or two, hold for over 12 months and get a CGT discount of 50%.
Is anyone bothering to keep track of the tax brackets these days??? You now have to be earning over $150,000 AUD a year to get into the top tax bracket. Lets say you're a slightly above average Joe and you make $75k a year. If you sold an investment property after 12 months and made $100k cap gain you would pay a tax at a rate of 21% on your gains. If you were a bit of a high roller and managed to make $150k a year you'd still only pay 23.5%. None of these figures take into account the tax benefits of negative gearing or depreciation on investment properties, so you can assume on the sum of things these rates will go down even further.
Still seems like a lot of tax to pay on a deal? But over on other threads people are scrambling for solutions to their share market tax problems with answers like, "I'll incorporate and get the 30% company tax rate"...it's all relative...< 20% tax ain't that bad. Maybe you take a long holiday the year you sell your house in Australia...hmmm. Perhaps you can get your tax down to 15% that way, and a free holiday. Its not just about money accumulation, we've all got to
live as the years pass by.
I only wonder which area of Melbourne 7kms from the CBD...and also notice you bought in Jan 04...prices were generally flat or falling in Melb into late 04, so if you bought then instead you would have fared better since you would have got a greater %age increase and have had less holding time hence less interest payments.
Imagine you said to someone they could
live for rent free in their own house for 2.5 years...what kind of leg-up might that provide the average person in life?? "Hey, your rent is going to be taken care of for 2.5 years, do you think you can save $x for investing in the sharemarket or starting a business or going on an overseas holiday without having to come back with maxed-out credit cards???
Those days of the late 90's where you could buy a run down shack, slap on a coat of paint and sell for double are gone. But you don't need to hit home runs to make it worth it...looks like you just proved that property is still a viable way to get ahead. All you need is a further 10, 15 or perhaps 20 years of smart decisions and you'll be as wealthy as a baby boomer
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