Tax Tip 361: CGT on Inheriting a Rental Property, Living in it for a While Then Selling it

Discussion in 'Accounting & Tax' started by Terry_w, 17th Jul, 2021.

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  1. Terry_w

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

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    CGT will be worked out on an apportionment basis where someone inherits a property that was a rental property of the deceased and then lives in that property. It is similar to moving into an investment property, it can never be free from CGT.


    Example

    Homer has an investment property. He leaves it under his will to his son Bart. At the point the executor transfers title to Bart, it stops being a rental property and it becomes Bart’s main residence.

    It was rented out for a title of 1,375 days before Bart moves in Bart sells it after another 4,029 days.

    How much of the gain would be exempt from CGT



    Bart inherits the cost base of the deceased, so it cannot be exempt from CGT when Bart sells it.

    Bart must work out the total ownership days and the proportion of time that it was rented out.

    Total ownership period of Bart and Homer was 5,404 days

    Bart lived in it for 4,029 days and it was rented for 1,375 days.

    So 1375/5404 will be the portion of the capital gain that will be subject to CGT.

    The cost base expenses must be worked out first though and then the 50% CGT discount apply to the end result.
     
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