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Bought a house at 250k, converted after 8 years to rental (was worth some 160k then), rented out for two years, sold for 250k. While renting, depreciation was based on market value, 200k. What is capital gains based on, value at time of purchase or value at time of conversion? Thanks, Aaron

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What country are you in as tax laws are different in different countries?

As an example, in Australia, if you buy a property and live in it first and then you rent it out later, if you sell the property within 6 years of you moving out, you pay no capital gains tax on the sale, as long as it still remains your principle residence. Where this may apply could be where you have to relocate temporarily for work or another reason, so in the mean time you rent out your place whilst you are away. You then decide to relocate permanently and sell your house. If it is within 6 year between when you moved out and when you sell the place, then the capital gain becomes exempt.

Another example is in the USA, where you pay capital gains tax when you sell, no matter if you lived there or rented it out. Since in this case your purchase price is the same as your sale price there should be no capital gains tax due if you are in the USA.

In general though, in countries where no capital gains tax is payable on your main residence where you live, capital gains would be based on the value at time of conversion to a rental property.

  • Does Australia have depreciation? – JTP - Apologise to Monica Jan 25 '15 at 3:10
  • @JoeTaxpayer - yes we have Capital Works Deduction which is for the construction of the building and related works and Depreciating Assets for the different fittings like Air-Con etc. Any depreciation claimed whilst renting out the property generally reduces the Cost Base for CGT purposes. However, the exemption stands if you lived in the place first and then rent it out upto 6 years. We don't pay CGT nor can we claim depreciation or other expenses during the period we live in the place. – Victor Jan 25 '15 at 3:46
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You have no capital gain, just recaptured depreciation, which has its own special tax rules.

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