To calculate a capital gain or capital loss, you need to know the cost base of your asset. The basic rules are the same for all assets, but some additional rules apply to calculating the cost base or reduced cost base of real estate.
There are a few rules to keep in mind when you calculate your capital gain or capital loss from real estate, in particular rules relating to:
- the costs of owning
- cost base adjustments for capital works deductions.
Costs of owning
You do not include rates, insurance, land tax, maintenance and interest on money you borrowed to buy the property or finance improvements to it in the reduced cost base. You only included them in the cost base if:
- you acquired the property under a contract entered into after 20 August 1991 (or, if you didn’t acquire it under a contract, you became the owner after that date), and
- you could not claim a deduction for the costs because you did not use the property to produce assessable income – for example, it was vacant land, your main residence or a holiday home during the period.
Example
On 1 July 2010, Kris purchased a block of land for $240,000 (including legal fees, stamp duty and related expenses). On 30 June 2015, he sold it.
During the five years he owned the block, he paid $25,000 for rates, land tax and interest. As he did not use the land to generate any income, he could not claim a deduction for any of these expenses.
The cost base of the block of land is $265,000.
End of example