Inherited A Home? If You Sell, Watch Out For These Tax Traps!
Inheriting a home can be both an emotional and practical experience.
Alongside the personal significance, there are important tax considerations to be aware of – particularly if you decide to live in the property for a period and then sell it.
Understanding how the Australian tax rules apply can help you avoid surprises and make informed decisions.
From a tax perspective, the key issue is capital gains tax (CGT). Whether CGT applies – and how much – depends on how the property was used both before and after you inherited it.
If the deceased person lived in the property as their main residence and it was not being rented out at the time of death, the starting point is generally favourable. In many cases, the property can be sold CGT-free if it is sold within two years of the date of death. This two-year period is an important concession and often provides flexibility for beneficiaries while estates are being finalised.
However, things can change if you move into the inherited home, live in it, and later sell it. Living in the property does not automatically reset the tax clock or create a new CGT exemption.
The CGT outcome will depend on:
When the property is sold,
Whether it was ever used to produce income (such as being rented), and
The deceased’s original cost base and ownership history.
If the property is sold after the two-year window, a partial CGT exemption may still apply. The capital gain is generally calculated based on the period from the deceased’s date of death to the date of sale, with exemptions applied for periods where the property was treated as a main residence. Importantly, your time living in the property can help reduce or eliminate the taxable gain – but it doesn’t guarantee a full exemption.
If the deceased had rented the property out or never lived in it as their main residence, the CGT position can be more complex. In these cases, the property may be fully subject to CGT, and the starting cost base may trace back to when the deceased originally acquired the property – sometimes decades earlier.
Another common trap is assuming that no records are needed. In reality, keeping documentation such as probate valuations, ownership dates, and details of any improvements made to the property is critical. These records form the foundation of an accurate CGT calculation.
Inheriting property brings with it both opportunity and responsibility. Before making decisions about moving in or selling, it’s worth getting tailored advice. A short conversation early on can help you understand your options, manage tax exposure, and make choices that align with both your personal and financial goals.
