- October 18, 2023
- Posted by: legaleseblogger
- Category: Related News
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Heading: Seeking Advice on Property Situation and Tax Implications
Hello everyone,
I am seeking some advice and guidance regarding a property situation that I am currently facing. Back in 2018, I made the decision to purchase a piece of land measuring 800sqm in a highly sought-after area within the Wellington region. However, due to unforeseen delays, the title for this property was only granted to me in 2022. At the time of its purchase, I paid approximately $180-190k for the land, taking advantage of the lower property prices during the pandemic.
Now, let’s fast forward to 2021, where other sections within the same area are being sold for $500k or even more. However, if we fast forward once again to 2023, these prices have decreased to around the $400k mark. This is the key dilemma that I am facing and where I hope to get some guidance: I am currently subject to the 5-year bright-line rule, which means I have 3.5 years left before this timeframe expires.
Furthermore, my annual rates for this property amount to approximately $4000, the highest within the country. Additionally, I have an existing loan with interest-only payments. Considering all these factors, I am deliberating whether to hold onto the property for the remaining 3.5 years to avoid the tax implications, or if it would be wiser to consider selling the property sooner, considering the current market trends and my tax situation.
This decision is not an easy one, as on one hand, there is a concern that property prices might further decrease. On the other hand, neighboring houses within the subdivision are now being sold for $1 million or even more, with the one adjacent to mine priced at $1.3 million.
I would greatly appreciate any insights, advice, or opinions on this matter. Additionally, I have a mortgage for both my owner-occupied property and this land, totaling $620k. Therefore, reducing this mortgage is one of my key goals, as building on the land is unfortunately no longer an option due to borrowing limitations. It is quite disheartening, as it would have been a lucrative investment opportunity.
Thank you all in advance for your valuable input.
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If you bought in Wellington at market in 2018 you might be surprised at what you can actually get for it now. I’d get some advice on realistic sale price and go from there. With construction and financing costs up, the CG might not be much.
Taking the example I am familiar with in Crofton Downs, section prices spiked from $200k to $400k during COVID, but now even completed houses are looking at around $1m, which would imply the section only being valued at $200k again.
Just sell and pay the tax?
400 – 190 = $210,000 of income.
Yes, a portion of it will come out at 39%, but takes all the stress away.
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Owned individually, or with partner?
[deleted]
Refer to the IRD document IR1227, the brightline start date may be the date of the contract and not the date title was transferred. Ie 2018, so 5 years may have passed, if the contract was before 29 March 2018 youÔÇÖd only be subject to the 2 year brightline too. I would consult an accountant. Ird will probably have questions as they only see the title date, not the contract date but as long as that was all completed correctly you may be alright.