Is real estate commission tax deductible when selling property

[Alexy]

Hi guys,

I purchased property in 2017 for let's say $500,000. Sold it in 2018 for $510,000. Paid to a real estate agent a sale commission of $12,000.

So I made a loss of $2,000.

Question: is the agent commission tax deductible? basically do I have a tax to pay?

I think there is a loss, hence no tax obligations, am I right?

thanks

[Anthonyacat]

If the property is a long term hold, then to start with there should be no tax to pay on capital gain on sale, and real estate commissions (and all other costs of sale, except for Legal Fees which have a special section of tax law) are non-deductible expenses because there is no income relating to them.

However, in this case you would be subject to the 2-year Bright Line test so it is in fact taxable. So yes, costs of sale are deductible, and in your example above you would have a Bright Line loss of $2,000 - this is not deductible against your PAYE salary, but carries forward to offset future land sale profits.


If the property was bought with the intention to sell, the situation is totally different, while still being quite the same! Any gain on sale is taxable, and your costs of sale are deductible. You would have $2,000 which can be offset against your PAYE salary.

[Alexy]

If the property is a long term hold, then to start with there should be no tax to pay on capital gain on sale, and real estate commissions (and all other costs of sale, except for Legal Fees which have a special section of tax law) are non-deductible expenses because there is no income relating to them.

However, in this case you would be subject to the 2-year Bright Line test so it is in fact taxable. So yes, costs of sale are deductible, and in your example above you would have a Bright Line loss of $2,000 - this is not deductible against your PAYE salary, but carries forward to offset future land sale profits.


If the property was bought with the intention to sell, the situation is totally different, while still being quite the same! Any gain on sale is taxable, and your costs of sale are deductible. You would have $2,000 which can be offset against your PAYE salary.

Thank you Anthony,

can you have a look at this IRD tax calculator,please?

https://www.ird.govt.nz/calculators/keyword/property/property-net-profit-calculator.html

it looks as if it does not deduct any sale related expenses from income.
Do you know a guide or FAQ from IRD which unambiguously states that sale related expenses are tax deductible?

thanks

[Anthonyacat]

It's poor wording on the site. But it does say to contact a tax professional.

Sale costs have always been deductible on properties where the gain on sale is assessable income. This is no different for the Bright Line sales, just that the net loss can't be offset against other income and has to carry forward.


I've found a page on the IRD website that states this: https://www.ird.govt.nz/technical-ta...ight-line.html


The cost of the property can be deducted
A person who sells property that is subject to the bright-line test will be allowed a deduction for the cost of the property at the time of sale.

The cost of the property includes the amount that was paid to acquire the property (the initial acquisition price of the property). The cost of the property also includes any expenditure related to the acquisition. As a result, the costs of lawyers, valuers, surveyors and real estate agents are deductible. The incidental costs of disposing of the property are also deductible as part of the cost of the property. The cost of the property also includes any capital improvements to the property made after acquisition, such as renovations.

[Alexy]

thanks again, I have sent email to the IRD to clarify the matter. Will update when I get an answer.

[Rosco]

Hi Alexy,

You have been given an answer above, why do you need to email IRD or clarify the matter?

I would suggest you get some accounting help with your return, as this is really basic accounting and if you are questioning this, then what else are you getting wrong, or don't know?

A couple of points might help;

1) If it is your personal house, then most likely not taxable under brightline either, and therefore not claimable
2) If it is a long term rental property then , two parts
- You still need to return the rent and claim the appropriate expenses for each tax year, would could be a combination of 2017,2018 and 2019.
- Then there is the brightline loss as explained above

Ross