- October 19, 2023
- Posted by: legaleseblogger
- Category: Related News
Speed-Dial AI Lawyer (470) 835 3425 FREE
FREE Legal Document translation
Try Free Now: Legalese tool without registration
AI Legalese Decoder: Helping You Make Informed Decisions
Introduction
I’m fortunate enough to be in a position to be a homeowner to two properties. One property is our Primary Place of Residence (PPOR), and the other serves as an investment property with a granny flat. However, with the recent rate hikes and the rise in property value, my partner and I are contemplating whether it would be beneficial for us to cash out. This is where the AI Legalese Decoder comes into play, assisting homeowners like us in making informed decisions.
Exploring the 6-Year CGT Rule
Having resided in our investment property for about a year before purchasing our current home, we are aware of the 6-year Capital Gains Tax (CGT) rule. This rule essentially exempts us from CGT if we lived in the investment property within six years of selling it. The AI Legalese Decoder would provide us with a comprehensive understanding of how this rule applies to our unique situation, allowing us to make an informed decision.
Financial Details
Back in 2015, we purchased the investment property for approximately $530k. In 2017-18, we built a granny flat at the back of the property, worth $120k. Although the rental yield on both the main house and the granny flat has been decent so far, the recent rate hikes have made the situation less favorable. Currently, the main house generates a net income of $420 per week, while the granny flat yields $370 per week. The AI Legalese Decoder can assist in analyzing the financial data and determining our profitability and potential risks in the present market.
Considering Selling
Considering the comparables in the area, it is evident that we could potentially sell the investment property for $1m. Performing some preliminary calculations, deducting the mortgages and sellers fees, we estimate that we could pocket around $420k, excluding the CGT exemption. Moreover, we would return the $50k gifted by my parents during the purchase and set aside another $50k for a specific purpose. This would leave us with just over $300k. The AI Legalese Decoder would provide us with a detailed breakdown of the financial implications, accounting for all relevant factors, including the CGT exemption, to help us make an informed decision.
Smart Investment Strategies
Given our circumstances, my current line of thinking is to invest half of the proceeds, approximately $150k, into a safe and reliable Exchange-Traded Fund (ETF). This would serve as a smart investment strategy to diversify our portfolio. The remaining half would be left in the bank to help offset the current mortgage for our PPOR, which stands at around $600k. The AI Legalese Decoder could analyze various investment options and provide us with tailored advice, considering our risk tolerance, financial goals, and market conditions.
Conclusion
Considering our age, combined cash assets of approximately $70k, and no other investments, the decision to sell the property is significant. Utilizing the AI Legalese Decoder, we would gain valuable insights into the current market trends, legal implications, CGT exemptions, and financial strategies. By leveraging this powerful tool, we can make an informed decision that aligns with our goals and priorities. Any thoughts and inputs from experts utilizing the AI Legalese Decoder are welcome, as they would help us have a more comprehensive understanding of the situation at hand.
Speed-Dial AI Lawyer (470) 835 3425 FREE
FREE Legal Document translation
Try Free Now: Legalese tool without registration
Heading 1: Introduction to AI Legalese Decoder: Revolutionizing Legal Document Understanding
Heading 2: The Need for AI Legalese Decoder in the Legal Industry
The legal industry is notorious for its extensive use of complex and convoluted language, commonly referred to as “legalese.” This language serves the purpose of ensuring precision and clarity in legal documents, but it often becomes a barrier for non-legal professionals to understand and interpret. This poses a significant challenge when it comes to reviewing and comprehending legal contracts, agreements, and other legal texts.
Heading 3: How AI Legalese Decoder Works
AI Legalese Decoder is an innovative software that utilizes artificial intelligence and natural language processing techniques to decipher the meaning of legal texts. By analyzing the structure, vocabulary, and syntax of legal documents, this tool breaks down the barriers of legalese and provides accurate and simplified interpretations. Its advanced algorithms can recognize legal terminology, identify key clauses, and extract essential information from lengthy documents.
Heading 4: AI Legalese Decoder Enhances Document Review Process
The complexity of legal language often leads to misunderstandings and misinterpretations, potentially resulting in costly legal disputes. With the help of AI Legalese Decoder, legal professionals can streamline their document review process and ensure accurate comprehension of legal texts. This software enables them to quickly identify critical clauses, flag potential risks, and extract relevant information, thus significantly reducing the time and effort required for manual document analysis.
Heading 5: AI Legalese Decoder Facilitates Access to Justice
One of the greatest advantages of AI Legalese Decoder is its potential to enhance access to justice by making legal information more comprehensible and accessible to non-legal professionals. By simplifying legalese, this tool empowers individuals and businesses to understand their legal rights, obligations, and potential liabilities, without the need to rely heavily on legal experts. This democratization of legal knowledge can level the playing field, particularly for marginalized communities or individuals with limited resources.
Heading 6: AI Legalese Decoder Mitigates Legal Risks
The accurate interpretation of legal documents is crucial for making informed decisions and mitigating legal risks. AI Legalese Decoder not only enhances document review efficiency but also helps in identifying potential issues, ambiguities, or missing clauses that might pose a risk. By highlighting these points, legal professionals can proactively address potential legal pitfalls and take appropriate measures to protect their clients’ interests.
Heading 7: AI Legalese Decoder and the Future of Legal Industry
With the rapid advancements in artificial intelligence, AI Legalese Decoder represents a significant step forward in transforming the legal industry. By leveraging the power of AI algorithms, this tool has the potential to revolutionize the way legal professionals interact with documents, saving time, reducing costs, and enabling more informed decision-making. As the legal industry embraces technological innovations, AI Legalese Decoder can play a pivotal role in reshaping the practice of law, benefitting both legal professionals and the wider society.
Overall, AI Legalese Decoder is an invaluable tool that unravels the complexities of legal jargon, simplifies legal documents, and enhances understanding and accessibility. By leveraging artificial intelligence, it empowers legal professionals, saves time, mitigates risks, and broadens access to justice. As the legal industry adopts and integrates these innovative solutions, the future holds great promise for a more efficient, transparent, and equitable practice of law.
Speed-Dial AI Lawyer (470) 835 3425 FREE
FREE Legal Document translation
****** just grabbed a
The 6 year rule doesn’t work like that
If you move out of your home and rent then it applies
If you move out of your home into another home you own then it doesn’t apply
You can only have one PPOR CGT exemption at a time, with the exemption of the grace period you get to sell a place after buying a new one.
Just wanted to thank everyone’s responses this morning. I’ve read through each one and everyone makes great points. Also, it seems I’ve misinterpreted the CGT exemption and may be liable to indeed pay it, which would obviously skew my decision towards retaining the asset (might need to talk to my accountant about this). Appreciate all of your input!
I asked a similar question to my accountant just the other day. He advised me that you can only claim the 6 year CGT free if you do not own another PPOR. So it appears that you are going to have to pay the tax man if you want to sell. Obviously, talk to your accountant about this.
Why would you sell a good investment costing you nothing and growing in value?
Also if you do claim the PPOR exemption, you canÔÇÖt do it again for your current place for the same time period
I wouldnÔÇÖt sell a positively geared, appreciating asset.
What reason do you have to sell?
The asset has appreciated.
It will continue to appreciate.
It supports most of the cost in holding the leverage asset.
Your parents wanted to help you purchase and presumably understand that something like that is a long term lend, start to pay it back as though it was a small mortgage, you make decent income.
Your partner and yourself have an expense you want to pursue, start to see if you can afford that cost, you have good savings now, ensure you still have adequate emergency fund and or savings and go for it.
Lowering the interest of your current loan, just pay it down as much as possible if it is the major stressor in your lives, if you have an early retirement goal or a “stay at home” plan for children or something, you make a decent income for a 600k debt.
An ETF portfolio, you are extremely young, and have a decent head start, just invest, make small weekly contributions that you can afford and slowly build it.
If there is anything providing much more stress than laid out just exhaust all your options and see what you can do before selling,
Just remember The rental income will be greater than a small ETF portfolio,
A million dollar asset will likely outperform a small ETF portfolio,
You have the money now to pursue the spousal expenses, check if you can cash flow it,
If your parents need the money asap, you have it in savings, check how much you need to cover an emergency fund and communicate with them how long it will take to accumulate the rest.
The tax benefits of an investment debt will also help in a similar way to offsetting.
I would only sell if you worry about the current investment. The etf may tank as well so you need to be prepared for that mentally
6-year rule only applies if you didn’t have another property you were claiming MRE on. since you are, it doesnt apply, so you will incur CGT.
Absolutely I would sell in your situation.
I would’nt even put $150k into ETFs but just put that full $300k capital into the offset on your PPOR. Offset is a guaranteed tax free return equal to your morgage rate , you’ll struggle to find a better deal than that ! Having your PPOR paid off is an amazing life position. I’d be aiming for that ASAP
After tax returns on the investment property might come out ahead long term over the offset option but its a lot of risk for not much extra reward.
I guess the question is do you want your money in housing or shares and how much do you want the 50k to explore whatever it is with your partner, IÔÇÖm assuming your parents arenÔÇÖt desperate for the 50k. How comfortable are you in having an investment property? Is it a hassle, do you prefer just having one mortgage to think about.
Personally as itÔÇÖs positively geared IÔÇÖd probably just stay as you are right now. ThereÔÇÖs still a lot of uncertainty out there and if youÔÇÖre not struggling financially you can always sell another time.
I would get proper tax advice on the issue because it becomes complex. Have you considered the future impact of treating your current investment as as your main residence? For example if you go to sell your current residence in the future you would have to pay CGT on it for the period you treated your current investment as a main residence (e.g. they both can’t both be your main residence for a period of longer than 6 months source: https://www.ato.gov.au/Individuals/Capital-gains-tax/Property-and-capital-gains-tax/Your-main-residence—home/treating-former-home-as-main-residence/#Howitworks). There are a number of factors a good accountant would take into consideration before suggesting a path to take. Given the size of a potential CGT bill both now or in the future I would suggest it would be both prudent and cost effective to get proper advice.
You can usually tell a landlord’s attitude about their IPs by the condition they are in. I would sell out and use the money to enjoy life while you take time off work. As most people will work until the day they retire + some gigs thereafter. It’s pretty sad when people can’t enjoy the fruits of their blood, sweat and tears (mostly tears in Australia). Your plan sounds solid, but I am fascinated about Australians obsession with the offset account. Just pay it down rather than leaving it there for an emergency. Does every Australian have some type of anxiety around life?
Seems like a no brainer.
Give back the money you owe.
Personally I would sell, and stick the profit on the mortgage.
Once you take tax into account it works out a lot better an the etf. You pay your mortgage out of your post tax income.
I’d sell and free up some capital. Take some stress off and enjoy life a little.
Pretty sure the 6 year rule is for someone forced to move out of their PPOR to rent elsewhere. Not someone who bought another place to live in.
Real estate is all about leveraged returns. YouÔÇÖll loose your leverage and the asset isnÔÇÖt costing you anything to hold.
I wouldnÔÇÖt sell.
The only argument that I personally would accept to sell if I were you is that youÔÇÖll get to pay your parents back and do some things with the money youÔÇÖve been waiting to do.
Once you go over the 6 years just get a valuation at the end of the 6 years and this will set your cost base. Up to that amount will still be CGT free. But then again, because you have another PPOR youÔÇÖve been living in the 6 year rule actually applies differently. As soon as you moved into your new PPOR you loose the benefits of the 6 rear rule and only get 6 months to sell. So youÔÇÖre actually going to be up for some CGT as well. And a fair bit possibly because youÔÇÖre already in a higher tax bracket.
Surely you are not serious about selling!
You will absolutely be worse off
Creating a taxable event, the fees and costs associated with the sale.
Your net position will be smaller. And to achieve the same benefit to your net position the ETF will have to achieve much more than benchmark just to compete with a $1m property growth, e.g 10% vs 3% Assuming both go up. 300 in offset while low risk wont provide anywhere near the benefit of holding a positive property..
Honestly you have done all the hard work and really need to hold these for a full 10-15 years. The goal should be to hold until this one pays off your own home the return for the effort seems a little disappointing TBH..next year the rates will drop at least .75% and rents will only go up for the next two years! No way known they can build what is needed now! This will push prices higher and rents! Hang in there!
You’re only 30. What’s the hurry. Use the rule of 72 to determine when you will double you’re investment and then sell after that.
Sit on it for as long as you can and let it appreciate as much as humanly possible. I mean it sounds like you’re not needing emergency funds or anything?
I would hold it especially since it’s positively geared and costing you nothing.
However: pay your parents back their $50k
Never sell anything! Best advice I can give
This was my dilemma about 15 years ago and where my investment property was cashflow positive and the mantra at the time was cashflow negative was king (to bring down my taxable income).
Instead i bought another one to go into negative again and this lasted about 3 years until they were collectively positive again.
15 years later i have 12 investment properties and a sleep every night knowing i made the right call.
You have equity – buy up my friend!!!!
You will have to move back in to have the CGT exemption apply. Make sure you do that – even for a week.
If you don’t sell get a valuation so you know better the amount you need to use for CGT. The line in the sand so to speak.
The cost base for the rental property is the market value when you first rented it i.e. MV 6 years ago. It will be exempt from CGT up to 6 years, assuming you will not apply to current PPR.
The tax free capital gain will be (1 year living it + up to 6 years) / holding period.
You will not have the MR exemption on the current place while it applies to the former MR.
You really need to do the metrics on what this means for your current home vs investment property.
Bored tax advisor.
No one on here has the Answer
Refer to your Property Depreciation Report that you should have got done and refer to that
The percentage of time you were in the property is CGT Exempt
To Be capital Gains Exempt you must have lived in the property for the first 12 months (also liable for taxes if you didnÔÇÖt ) and sell within 6 years of the purchase date if you move back in you can reset the 6 year timeframe
Your Investment has a lot more tax perks then just the rent received itÔÇÖs also got depreciation which can be written off your taxable income
I am 26 have 3 houses
2 of which are investment and I rented out my principal place will move back in 12 months prior for the 4 bedroom main property which I plan on being a family home
I havenÔÇÖt paid a cent Income tax in my life
Brought the houses at 18 and instantly wrote down losses against them
congrats on obtaining wealth so young. keep the house imo.
I see no reason to sell given the asset, your age and situation. If anything I would refinance to get equity out of the IP, pay back your parents and shift it to the PPOR to reduce repayments there and maximise them on the IP while maintaining the same overall debt level
you would be sorry in 10 years if you sold it now….
Free up the cash mate! You can always buy more property and if you havenÔÇÖt experienced the liberty of having half a mill cash sitting there , itÔÇÖs great and can really open doors!!! Live a little man, enjoy it, itÔÇÖs done itÔÇÖs job
Everyone’s individual situation is different. But my advice would be hold on to the property to experience more capital growth over the next 15 to 25 years. I held onto a property for 20 years where the capital value of the property grew by something like 345% in that time frame (7.5% per annum).
You are around 30 years old. If you hold onto it for another 25 years , your property will likely be worth around $5.4m at 6.8% growth (annual percentage change for the last 25 years in Australia, national).
If it happens to grow at 7.5% for the next 25 years your property will be worth around $6.4m.
Something to think about.
*Source for growth rates:* https://www.aussie.com.au/content/dam/aussie/documents/home-loans/aussie_25_years_report.pdf