Holding costs on a loooong trade ?

[DemiDan]

I bought a house to sell on a lease option, it went well for a few years. Then I had a big change in personal circumstances and also the lease option occupants bailed out. I couldn't sell the house at the time so decided to rent it out. Yes the gst that I had claimed became payable and I paid it. I have now owned it for over ten years and am thinking of selling. My accountant says it was bought as a trade and is still a trade and income tax will be payable.

if it is a trade are the holding costs an expense? Ie ten years of interest, rates, insurance, painting, insulating, fixing the drains etc.

If so would taxable profit = sell price plus rent received - buy price and a long list of expenses over the last decade?

Any thoughts?

Thanks

[Nick G]

I believe that is the case. However your accountant will have filed taxes year on year so check in with them on the details.

[Anthonyacat]

Your accountant is correct that because you had firm intention at point of purchase to sell it, your gains are taxable. The fact you've owned for 10 years or 110 years makes no difference in this case.

Yes, the holding costs will be deductible expenses; but your accountant has probably already claimed most of these in your annual returns, against the rental income, over the last ten years.

You can also deduct the cost of the real estate agents fee for selling the place, which is considered 'capital' and thus non-deductible for normal sellers.

And any "capital improvements" made to the property over the period of ownership are added to the "cost", and so decrease your overall taxable profit.

But after ten years of ownership, I do not envy your tax bill. Not at all. This is actually a bit of an unfair law, as a significant portion of your taxable 'gain' is actually just inflation.

[DemiDan]

Hi Thanks for responses... yes I have talked it through with accountant again and gained more clarity. yep that will be a high tax bill but at least there is even higher property gain to cover it, and over all selling still has a good benefit to my family.

Thanks

[Rosco]

Hi DemiDan,

It is often worth while checking what GST you have paid too.

Did you return lundy adjustments each year?

Ross