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CGT implications of renting out an inherited property

Newbie

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I am the executor of my late mother's estate. She owned a home in a small country town that was her main residence up to the time of her death in 2019.  I understand that I have 2 years to sell the property from the time of her death to get a full exemption from CGT.  However, it will likely take more time than that (very slow property market) and I may have to rent the property in the meantime to pay for its upkeep.  If I cannot get the ATO to grant me an extension on the 2 years, what cost base do I use for the property when a sale finally eventuates ie

a) market value on the date of my mother's death or

b) market value at the date I first rent the property (or make it available for rent)? 

thanks in advance

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Most helpful response

ATO Community Support

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Hi @ec2,

 

Thank you for reaching out to us. The website advises how to determine the cost base. - If you inherit a dwelling there are special rules for calculating your cost base.

The first element of the cost base or reduced cost base of a dwelling – its acquisition cost – is its market value at the date of death if any of the following apply:

  • the dwelling was acquired by the deceased before 20 September 1985
  • the dwelling passed to you after 20 August 1996 (but not as a joint tenant), and just before the deceased died it was their main residence and was not being used to produce income, or
  • the dwelling passed to you as the trustee of a special disability trust.

In any other case, the acquisition cost is the deceased's cost base or reduced cost base on the day they died. You may need to contact the trustee or the deceased’s tax adviser to obtain the details. If that cost base includes indexation, you must recalculate it to exclude the indexation component if you prefer to use the discount method to work out your capital gain from the property.

If you're a beneficiary, the cost base or reduced cost base also includes amounts that the trustee of the deceased's estate would have been able to include in the cost base or reduced cost base. 

 

If you require an extension on the 2yr exemption you may be able to request one.

 

Please use the links provided for further assistance.

 

Regards,

Jodie2.

1 REPLY 1

Most helpful response

ATO Community Support

Replies 0

Hi @ec2,

 

Thank you for reaching out to us. The website advises how to determine the cost base. - If you inherit a dwelling there are special rules for calculating your cost base.

The first element of the cost base or reduced cost base of a dwelling – its acquisition cost – is its market value at the date of death if any of the following apply:

  • the dwelling was acquired by the deceased before 20 September 1985
  • the dwelling passed to you after 20 August 1996 (but not as a joint tenant), and just before the deceased died it was their main residence and was not being used to produce income, or
  • the dwelling passed to you as the trustee of a special disability trust.

In any other case, the acquisition cost is the deceased's cost base or reduced cost base on the day they died. You may need to contact the trustee or the deceased’s tax adviser to obtain the details. If that cost base includes indexation, you must recalculate it to exclude the indexation component if you prefer to use the discount method to work out your capital gain from the property.

If you're a beneficiary, the cost base or reduced cost base also includes amounts that the trustee of the deceased's estate would have been able to include in the cost base or reduced cost base. 

 

If you require an extension on the 2yr exemption you may be able to request one.

 

Please use the links provided for further assistance.

 

Regards,

Jodie2.