Inheriting a family home or investment property can raise an important tax question: will you need to pay capital gains tax when you eventually sell it?
In Australia, inheriting a property does not generally create an immediate capital gains tax liability. The tax consequences usually arise when the estate or beneficiary later disposes of the property.
Whether CGT applies depends on several factors, including when the deceased acquired the property, how it was used, when the owner died and when the property is sold.
Understanding these rules before selling can help you assess available exemptions and preserve the records needed for an accurate calculation.
Do you pay capital gains tax when you inherit a property?
Generally, no CGT is payable simply because a property passes from a deceased person to their legal personal representative or beneficiary.
The inherited property may still be subject to CGT when it is sold.
A full exemption may apply to an inherited dwelling where the conditions for the deceased estate main residence exemption are satisfied.
Other inherited properties may qualify for a partial exemption or be fully subject to CGT.
Inheriting the property
Usually does not trigger an immediate CGT liability under the deceased estate roll-over rules.
Selling the property
May trigger CGT unless a full exemption applies. The tax result depends on the property's history and disposal circumstances.
What is the two-year rule for inherited property?
Australia's deceased estate main residence rules can provide a full CGT exemption when an inherited dwelling is disposed of within two years of the deceased person's death.
The exemption is subject to eligibility conditions. Broadly, it can apply where:
- The deceased acquired the dwelling before 20 September 1985.
- Or the deceased acquired it on or after that date and it was their main residence just before death, with the relevant income-producing use conditions satisfied.
- The ownership interest ends within two years of death, or within a longer period allowed by the Commissioner.
For a typical sale, the two-year test concerns when the ownership interest ends, generally at settlement. Signing a contract shortly before the deadline may not be sufficient if settlement occurs later.
There are also alternative exemption pathways where the dwelling qualifies as the main residence of certain eligible people for the required period.
Selling a parent's main residence within two years
Your mother owned and lived in her home when she died in January 2025. The property was not being rented at that time.
You inherit the property and the sale settles in November 2026.
Assuming the remaining conditions are satisfied, the sale may qualify for the full deceased estate CGT exemption.
How does the inherited property CGT exemption work?
When did the deceased acquire the property, and was it their main residence?
Was the property rented, used for business or subject to special main residence rules?
Will ownership end within two years of death? If not, could another exemption pathway or extension apply?
Assess whether the gain is fully exempt, partly exempt or subject to CGT.
What happens if you sell after two years?
Selling more than two years after the deceased's death does not automatically mean the entire gain is taxable.
Another exemption may apply if the dwelling was the main residence of an eligible person for the required period.
Depending on the circumstances, that person may be a surviving spouse, someone with a qualifying right to occupy the dwelling under the will or the beneficiary who inherited the dwelling.
If the full exemption conditions are not met, a partial exemption may still be available.
The calculation can involve periods when the property was used to produce income or did not qualify as a main residence.
Can the ATO extend the two-year deadline?
The Commissioner of Taxation has discretion to allow a longer period in appropriate circumstances.
The ATO's guidance identifies circumstances that may support an extension, including delays outside the control of the executor or beneficiary.
Examples can include disputes involving the will, complexities in administering the estate or unexpected settlement delays.
An extension is not automatic. The ATO considers the reasons for the delay and the relevant facts.
The ATO also provides a safe harbour approach for certain situations. Where its conditions are met, an eligible taxpayer can treat the extension as allowed without separately requesting the Commissioner's discretion.
See ATO Practical Compliance Guideline PCG 2019/5 for the extension rules.
What if the inherited property was an investment property?
An inherited rental property does not automatically qualify for the main residence exemption.
If the deceased acquired the property after 19 September 1985 and it was an investment property immediately before death, a sale will generally require a CGT calculation.
The property's original purchase cost and subsequent eligible costs may be relevant.
A property purchased before 20 September 1985 can receive different treatment, even if it was rented.
The deceased's acquisition date is therefore an important starting point.
How is the cost base of an inherited property calculated?
The cost base is used to calculate a capital gain when a property is sold.
The first element of the cost base depends on how and when the deceased acquired the property.
| Property circumstances | General starting cost base |
|---|---|
| Deceased acquired the property before 20 September 1985 | Market value at the date of death, subject to relevant special rules. |
| Deceased acquired the dwelling after 19 September 1985. It was their main residence immediately before death and was not used to produce income. Other statutory conditions apply. | Generally the market value at the date of death. |
| Deceased acquired the property after 19 September 1985 and it was an investment property | Generally the deceased's cost base at death, rather than the property's market value. |
Other eligible costs, including certain selling expenses and capital improvements, may affect the eventual calculation.
A valuation at the date of death can be particularly important where the market value rules apply.
Inherited property sold for $900,000
Assume the property qualifies for a date-of-death market value cost base of $650,000.
You later sell it for $900,000 and incur $25,000 in eligible selling costs.
The illustrative capital gain before exemptions, discounts or capital losses would be:
$900,000 − $650,000 − $25,000 = $225,000
The taxable result may be lower if an exemption, CGT discount or capital loss applies.
This example assumes no other cost base adjustments and does not calculate the final tax payable.
Can you claim the 50% CGT discount?
Eligible Australian resident individuals may qualify for the 50% CGT discount on a taxable capital gain from an inherited property.
The relevant ownership period depends on the deceased's acquisition date and the applicable inheritance rules.
For some inherited assets, the deceased's ownership period counts towards the 12-month requirement.
Other situations use the date of death as the relevant acquisition date.
Companies do not qualify for the general 50% CGT discount. Different rules may apply to trusts, foreign residents and superannuation funds.
The discount should only be applied after checking eligibility and accounting for relevant capital losses.
What if you rent out the inherited property before selling?
Renting an inherited dwelling can affect the CGT outcome, depending on its history and which exemption pathway applies.
If you qualify for the full exemption through the two-year disposal rule, rental use after death does not necessarily prevent the exemption.
Where the property is retained beyond the qualifying period, income-producing use may affect the availability or extent of an exemption.
Rental income and expenses also need to be reported under the ordinary income tax rules.
Keep tenancy agreements, rental statements, expense records and dates of occupancy.
Who pays CGT if the executor sells the property?
The tax treatment can differ depending on whether the property is sold by the deceased estate or transferred to a beneficiary who later sells it.
If the executor sells the property while it remains an estate asset, the estate may need to account for the relevant capital gain or loss.
If the property passes to a beneficiary who later disposes of it, the beneficiary generally considers the CGT consequences.
The main residence exemption may be available in either situation if the statutory conditions are met.
The estate's tax position should be reviewed before deciding whether the executor or beneficiaries will sell.
What if siblings inherit a property together?
When two or more beneficiaries inherit a property, each person's ownership interest and tax position must be considered.
If the property is sold, the capital gain or loss may need to be allocated according to the relevant ownership interests.
If one sibling purchases another sibling's share, that transfer may itself have tax and duty consequences.
State and territory duties are separate from federal CGT and should be assessed before ownership changes.
What records should you obtain before selling?
Executors and beneficiaries should gather documents early, particularly where the property has been owned for many years.
- Death certificate and relevant estate documents.
- Will, probate documents and property transfer records.
- Original property purchase contract, where available.
- Evidence of the deceased's acquisition date.
- Independent date-of-death valuation where relevant.
- Records of main residence and rental use.
- Capital improvement and renovation invoices.
- Relevant capital works and depreciation records.
- Property selling contract and settlement statement.
- Agent fees, legal fees and other eligible selling costs.
- Correspondence explaining delays in estate administration.
CGT records may need to be kept for at least five years after the relevant CGT event, with longer retention where other rules require it.
Frequently asked questions
Is an inherited house tax-free in Australia?
Inheriting a house does not generally trigger immediate CGT. Selling it may be exempt, partly exempt or taxable depending on the deceased's ownership history, the property's use and the disposal date.
Do I have to sell an inherited property within two years?
No. There is no general requirement to sell within two years. The two-year period is relevant to a particular CGT exemption. You can retain the property, but the future tax outcome may differ.
Does the two-year rule start at probate or death?
The statutory period generally starts on the deceased person's date of death, not the date probate is granted.
Can I get a CGT exemption if probate is delayed?
An extension may be available where qualifying circumstances prevent timely disposal. The ATO considers the reasons for the delay and provides a safe harbour for certain eligible cases.
Do I need a valuation when I inherit a property?
A date-of-death valuation is important where market value is used to establish the cost base. In other cases, the deceased's historical cost records may be needed.
Can I live in the inherited property before selling?
Yes. Living in the property may affect the CGT exemption available. The outcome depends on your status as a beneficiary, the property's history and the relevant main residence rules.
Is CGT calculated using the property's value when the person died?
Not always. The date-of-death market value applies in certain circumstances, including many pre-CGT properties and qualifying main residences. Other inherited properties generally retain the deceased's cost base.
Related RJS articles and services
Review the tax position before you decide to sell
Selling an inherited property can involve more than determining its current market value.
The deceased's purchase date, the property's history, estate administration and settlement timing can all affect the CGT result.
Before listing the property, establish whether a full exemption is available, whether a partial exemption applies and which records support the cost base.
If you are an executor, consider the tax consequences of selling through the estate compared with transferring the property to beneficiaries first.
Inherited a property and considering a sale?
Your RJS accountant can help review the property's ownership history, assess potential CGT exemptions and work through the tax implications before you sell.
Speak to an RJS AccountantSources and further reading
Australian Taxation Office: Deceased Estates and Inheritances
Australian Taxation Office: PCG 2019/5, CGT and Deceased Estates
Australian Taxation Office: Cost Base of Inherited Assets
Australian Taxation Office: Keeping Capital Gains Tax Records
Related RJS service: Rates Notice Objections
Information current as at October 2026.
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional adviser.
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