CGT and getting an inheritance

Discussion in 'Accounting & Tax' started by mmgg, 20th Jan, 2018.

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  1. mmgg

    mmgg Member

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    Say you buy a house for $100k it grows and you sell @ $150k. CGT of $50k so $25k to you and $25k to the government.
    Now the same happens but during the time of owning the house you get an inheritance of $10k and pay down the mortgage so there is a CGT of $60k when selling. So that means you pay $30k to you and the same to the government. Wouldn't you be better off not paying the $10k into the mortgage? Can anyone comment?
     
    mmgg, 20th Jan, 2018
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  2. Kassy

    Kassy Well-Known Member

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    Why does paying down the mortgage with your $10k increase your cgt? Are you keeping the property longer or doing improvements?

    Not an accountant or anything but CGT is based on sold price, purchase price, period you owned it, type of property eg. IP or PPOR, capital improvements, owner tax bracket etc.

    My advice would be to see an accountant before you sell and work out the numbers.
     
    Kassy, 20th Jan, 2018
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  3. wylie

    wylie Moderator Staff Member

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    The capital gain is worked on purchase price, sale price (and other things, cost base, what you've spent on the house, what you've claimed each year you've held it and saved on tax, etc).

    Whether there is a loan or not doesn't have any bearing on capital gain.

    What can make a difference is the income you've earned in the tax year you sell. So if you earn less, you will pay less overall tax because the gain is halved and added to your income for the year you sell it.

    If you sell and make a gain you can (if your finances and loan circumstances allow), prepay some interest for the following year and bring any expenses into the tax year that you make the gain to try to offset the gain.

    You might need a new roof, new driveway at another IP. Do that work and spend that money in the year you make a gain on another IP.

    See your accountant. :)
     
    wylie, 20th Jan, 2018
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  4. Marg4000

    Marg4000 Well-Known Member

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    That’s not how it works.

    $50K capital gain.

    If you have owned the property for less than 12 months, you add $50K to your taxable income for the year and pay the appropriate tax.

    If you have owned the property for more than 12 months, you get a 50% discount on the capital gain. So you add $25K to your taxable income for the year.....

    That is mostly how it goes. But there are exceptions, so always consult your accountant.
    Marg
     
    Marg4000, 20th Jan, 2018
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  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    not the case.

    And is a inheritance of $10k taxable?
    Does reducing a loan effect CGT?
     
    Terry_w, 20th Jan, 2018
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  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Ignore loans to determine CGT.
    Profit is $50K.
    Taxable profit x 50%b = $25K. Tax on that at marginal rate say 33% = $8,325 tax

    Your proceeds would be sale price less selling costs less legals less bank debt less tax. If you pay off $10K due to inheritance it just increases net proceeds since you owe bank less.

    Tip - Get tax advice before acting.
     
    Paul@PAS, 22nd Jan, 2018
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  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    If the sale is within 2 years of death the tax could be $0 too or reduced by other factors such as use as own home
     
    Paul@PAS, 22nd Jan, 2018
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  8. Mike A

    Mike A Well-Known Member

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    but if the person had moved into a nursing home prior to death and the estate hadnt applied the main residence absence provisions then they cant.
     
    Mike A, 22nd Jan, 2018
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