Inheriting a House Can Complicate Taxes

Have you ever considered the implications of inheriting a house and how this can complicate your taxes?

Inheriting a house can complicate taxes

Have you ever considered the implications of inheriting a house and how this can complicate your taxes? We recently read this fantastic Q&A article by George Cochrane which was published in The Age newspaper on Sunday 1 September and thought we should share it here…..

Question:
My mother acquired her home, a cottage, in 1988, after her death in 2009 I acquired the house from the estate and have since held it without living in it and without deriving any income. If I sell the property, can I offset all acquisition costs and all outgoings and enhancement expenses to date against Capital Gains Tax (CGT)? If I hold a bit longer and rent (lease for a term or possible just for holiday periods) and sell later, can I still then offset against CGT all the accrued costs and expenses as are outside/beyond any rent income periods?

Answer:
Since you chose not to rent what is in effect an investment property, you cannot claim deductions against income for any outgoings. As you note, the property will be subject to CGT if you sell it and its initial cost base will be its value as at the date of your mother’s passing.

This initial amount can be increased by four other elements:

  • the costs of acquiring the property, such as legal or accounting fees
  • the costs of owning the property (as you acquired it after August 21, 1991) such as rates, land taxes, repairs and insurance premiums
  • any costs incurred to increase or preserve the value of the property
  • any costs of preserving or defending your title (e.g if there had been a challenge to your inheritance).

Once the property is rented or available for rent, there are three categories of expenses for deductions:

  • those that can be claimed immediately against income (e.g advertising, cleaning, rates)
  • those that must be claimed over a number of years (e.g capital works, borrowing expenses, the decline in value of certain depreciating assets)
  • those that cannot be claimed against income (e.g since July 2017 travel to view the property – nor can this be added to the cost base – and the decline in value of some second hand depreciating assets

This was very well answered by George Cochrane @ The Age Newspaper however as you can see, things can get quite complicated and every situation is not the same! You could, if you really wanted some light (!) reading, download the 368 page Capital Gains Tax booklet from the ATO website as a start to learn a little more about this area of tax or you could give Dean a call and he’d be happy to help with any questions you may have.

– Dean Kennedy

Get In Touch

5 Hamilton Street, Gisborne

Macedon Ranges  Victoria  3437

dean@kennedysaccountants.com.au

0418 566 635

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