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As an investor and if you are doing well then you are going to have to deal with some taxes on your investment. One of these could be the capital gains tax. It is a type of tax that plays a big role in investments.
It is often called the CGT tax for short. Although many investors are familiar with the term they really don’t have a good understanding about this tax. Most don’t realise that it can have an impact on their investments. If you are going to invest in property then you need to make yourself aware of anything that can possible affect it.
The capital gain tax is as it indicates, is a tax that is levied on any capital gain you make on the property. If you dispose of a property and make money on it then it can have capital gain taxes attached to it. It doesn’t just apply to getting rid of the property but can apply to any type of financial transaction that takes place with the property where you gain financially by it.
Capital gains tax applies to any asset. It doesn’t necessarily mean owning the property itself, but could refer to the shares you own in an asset. While there are capital gains that can be on an asset there can also be capital losses that arise.
The capital gains is the amount of money you receive over and about the purchase price. So it means the difference between the buying and selling costs. You would have incurred buying costs such as the agents fees, and stamp duties as well as some others and these are included in the buying costs. Your capital gains is after these costs have been calculated in.
Often people get confused between capital gains and cash flow. Sometimes they believe they can give the property as a gift and by doing so are exempt from the capital gains, however this is not the case. The fair market value of the property at the time of the property transfer will be the amount that the capital gains tax is applied to and will have to be paid.
Some properties are not subjected to capital gains, for example your principal residence will not be subjected to this. Also, if you acquired assets before the capital gains tax can into effect which was September 20, 1985 then this assets will not be subjected to this tax.
In many cases the CGT is reduced on property that is held for more than 12 months. It can be reduced by as much as 50% but this is not always the case.
If you want to reduce the possibility of paying CGT then your options are not to sell the property, or make it your principal residence. This may mean you end up moving every couple of years if you are buying for investment purposes, but it is a trade off to having to pay the taxes.