Your investment property cost base helps calculate your capital gain or capital loss when you sell a rental property.
Getting this figure right matters. A clear and well-supported cost base can reduce your taxable capital gain. Depreciation claims, capital works deductions and renovation records can also affect your final tax position.
Before selling, investors should organise key records such as settlement statements, invoices, depreciation schedules and selling cost records.
What Is an Investment Property Cost Base?
An investment property cost base is the total amount used to calculate your capital gain or capital loss when you sell a rental property or another CGT event happens.
It usually starts with the purchase price. You then add eligible costs linked to buying, improving or selling the property. These can include stamp duty, legal fees, conveyancing fees, selling agent fees and certain capital improvements.
The basic formula is:
Capital proceeds – cost base = capital gain or capital loss.
For example, if you sell an investment property for $850,000 and your cost base is $720,000, your capital gain before discounts, exemptions or other adjustments would be $130,000.
Term | What it means for property investors |
|---|---|
Cost base | The total eligible amount used to calculate a capital gain or capital loss |
Capital proceeds | The amount received from selling the investment property |
Capital gain | The amount left when capital proceeds are higher than the cost base |
Capital loss | The amount left when the cost base is higher than the capital proceeds |
CGT event | An event that triggers a capital gains tax calculation, usually the sale of the property |
Records | Documents that support the cost base, such as contracts, invoices and settlement statements |
What Can Be Included in an Investment Property Cost Base for CGT?
An investment property cost base can include eligible costs linked to buying, owning, improving and selling the property. These costs must relate to the property, be supported by records and not have already been claimed as tax deductions.
For example, a purchase price, stamp duty and major kitchen renovation may form part of the investment property cost base if they meet the CGT rules.
Repairs and capital improvements need careful treatment. A repair usually restores an item. A capital improvement upgrades the property or adds value. A tax depreciation schedule can help identify the differences between construction costs, capital works deductions and plant and equipment assets for clearer CGT records.
Cost base category | Examples for investment property |
|---|---|
Purchase price | The amount paid to buy the rental property |
Acquisition costs | Stamp duty, legal fees, conveyancing fees and buyer’s agent fees |
Incidental costs | Valuation fees, transfer fees, settlement costs and auction fees |
Ownership costs | Certain interest, rates, land tax and insurance, where eligible |
Capital improvements | Renovations, extensions, structural upgrades and major improvements |
Selling costs | Agent commission, advertising, auction costs, legal fees and settlement fees |
Title defence costs | Legal costs linked to protecting or defending ownership |
What Costs Usually Cannot Be Included in the Cost Base?
Not every cost linked to an investment property can be added to the cost base. One common mistake is double counting costs already claimed as tax deductions.
Costs that usually cannot be included in the cost base include:
repairs and maintenance already claimed as deductions
interest, council rates, land tax or insurance already deducted
depreciation deductions already claimed
private or personal expenses
costs with no invoices, receipts or supporting records
costs not linked to buying, holding, improving or selling the property
Capital works deductions also need review. If you have claimed capital works deductions for construction or renovation costs, those amounts may reduce your cost base for CGT purposes.
Keep clear records and ask a registered tax agent to review your deductions, depreciation schedule and cost base before you sell.
How Depreciation and Capital Works Deductions Affect Cost Base
Depreciation can affect your investment property cost base because some deductions claimed during ownership may change your final CGT calculation.
For example, bathroom renovation costs may need to be split between capital works and plant and equipment. This matters because each category can affect deductions and CGT records in a different way.
A tax depreciation schedule prepared by a qualified quantity surveyor can help identify construction costs, capital works and depreciating assets before selling.
Depreciation category | What it covers | Why it matters for CGT |
|---|---|---|
Capital works deductions | Structural items, building works, fixed improvements and eligible renovations | Amounts claimed may reduce the cost base for CGT purposes |
Plant and equipment depreciation | Removable or mechanical assets, such as appliances, carpets, blinds and air conditioning units | These assets may need separate treatment from the building |
Tax depreciation schedule | A report that separates capital works from plant and equipment | Helps investors track deductions and keep clearer CGT records |
Investment Property Cost Base Records Investors Should Keep
Good records make it easier to prove your investment property cost base and calculate capital gains tax correctly. They also help you avoid missing eligible costs or double counting deductions.
Keep documents that show what you paid, what you improved, what you deducted and what you spent when selling. This may include:
the contract of sale
settlement statement
stamp duty records
legal and conveyancing invoices
buyer’s agent invoices
renovation invoices
builder receipts
depreciation schedules
tax returns
selling agent invoices
valuation reports, where relevant
The best time to organise these records is before you sell. Older documents can be harder to find, especially for renovations, inherited property, former homes turned into rentals or properties with several years of depreciation claims.
When Might a Market Valuation Be Needed for CGT?
A market valuation may be needed when the property’s market value must be used instead of the original purchase price or sale price. This can happen when a property was once your main residence and later became a rental property, when you inherited the property, or when the property was transferred between related parties.
A valuation may also help if records are incomplete or if you need to confirm the property’s value at a past date. This is often called a retrospective valuation.
For CGT purposes, a valuation should come from a qualified property valuer where required. A tax depreciation schedule is different, but it can still support your records for other costs.
Simple Example of an Investment Property Cost Base Calculation
Here is a basic example of how an investment property cost base may be calculated.
Item | Amount |
|---|---|
Purchase price | $700,000 |
Stamp duty | $28,000 |
Legal and conveyancing fees | $3,000 |
Capital improvements | $40,000 |
Selling costs | $18,000 |
Estimated cost base | $789,000 |
If the investor sells the property for $950,000, the capital gain before discounts, exemptions or adjustments may be:
Calculation | Amount |
|---|---|
Sale price | $950,000 |
Less estimated cost base | $789,000 |
Estimated capital gain | $161,000 |
This is not always the final taxable capital gain. The result may change if the investor can apply the CGT discount, has claimed depreciation, has claimed capital works deductions, qualifies for a partial main residence exemption or needs advice from a registered tax agent.
Common Cost Base Mistakes Property Investors Make
Small record-keeping errors can affect your investment property cost base and may increase your capital gains tax bill.
Common cost base mistakes include:
treating the sale price as the taxable capital gain
forgetting stamp duty, legal fees or selling costs
losing renovation invoices and builder receipts
confusing repairs with capital improvements
adding expenses already claimed as tax deductions
ignoring capital works deductions that may affect the cost base
failing to keep a depreciation schedule
relying on rough estimates instead of evidence
forgetting to review the partial main residence exemption rules
not getting tax advice before lodging the tax return
The easiest way to avoid these mistakes is to keep clear records during ownership. If you have claimed depreciation, completed renovations or changed the property from your home to a rental, review your cost base before selling.
To get a head start on your tax depreciation schedule, consider getting a depreciation schedule from Thrifty Tax by starting with a free quote.
Investment Property Cost Base FAQs
What is an investment property cost base?
An investment property cost base is the amount used to calculate your capital gain or capital loss when you sell a rental property. It can include the purchase price and eligible related costs.
What can be included in the cost base of an investment property?
It may include the purchase price, stamp duty, legal fees, conveyancing fees, buyer’s agent fees, certain ownership costs, capital improvements, selling costs and advertising costs.
Can stamp duty be included in the investment property cost base?
Yes. Stamp duty usually forms part of the investment property cost base because it relates to buying the property. Keep your settlement records as evidence.
Are legal fees included in the cost base for CGT?
Legal fees may be included if they relate to buying, selling or defending ownership of the property. Do not count fees already claimed as tax deductions.
Can renovation costs be added to an investment property cost base?
Renovation costs may be added if they are capital improvements, such as extensions, structural upgrades or major works. Repairs claimed as deductions are treated differently.
Do capital works deductions reduce the cost base?
Capital works deductions can affect the cost base because amounts claimed for construction or renovation works may reduce the cost base for CGT purposes.
Does depreciation affect capital gains tax on an investment property?
Yes. Depreciation can affect capital gains tax because deductions claimed during ownership may change the final CGT calculation.
What records should I keep for investment property CGT?
Keep contracts, settlement statements, stamp duty records, legal invoices, renovation invoices, builder receipts, depreciation schedules, selling cost records, valuation reports and tax returns.
Can I include repairs and maintenance in the cost base?
Usually, no, if they have already been claimed as deductions. Capital improvements may be different because they improve, replace or add value to the property.
Do I need a tax depreciation schedule for CGT records?
A tax depreciation schedule can help identify capital works deductions, plant and equipment assets, construction costs and depreciation claims before sale.
When do I need a market valuation for CGT?
A market valuation may be needed if the property was once your home, inherited, transferred between related parties, sold below market value or affected by missing records.
How do I calculate capital gains tax on an investment property?
Subtract the investment property cost base from the capital proceeds. The result is the capital gain or capital loss before discounts, exemptions or other tax adjustments.
What happens if I cannot prove my investment property cost base?
You may miss eligible costs and pay more capital gains tax than necessary. Clear records help support your tax position and reduce tax return errors.
