When selling a home, people sometimes focus on their emotional attachment to the house, how much they’re going to earn from the sale and where they’re going to live next. But what are the tax implications of selling a house?
When you sell an asset, you generally must pay capital gains tax (CGT) on the profits that you make from the sale. This includes selling any property you do not live in, such as rental or investment properties. However, if the house you sell counts as a main residence, then you do not have to pay CGT. The property counts as a main residence if it follows these ATO guidelines:
- You and your family live there.
- Your personal belongings are there.
- Your mail is delivered to that address.
- It is your address on the electoral roll.
- It is connected to services and utilities such as gas, water and electricity.
You are eligible for a full CGT exemption if the property is also on two or fewer hectares of land if you have lived in the house for the whole period you have owned it and haven’t earned income from it.
If the property you are selling is your main residence, then you cannot make any tax deductions for costs associated with buying or selling your home. However, if you use any part of the house to earn income then you could be liable for CGT for a portion of the time. If your home was initially used as an investment property before you decided to live in it, you can be partially exempt from CGT. The amount of tax you pay will be determined by how many days you rented out the property and how many days you lived in it. It is important to keep a record of documents related to your property to calculate the amount of tax you need to pay for periods it has been rented out.