Do you pay capital gains tax on an inherited property?

Not when the property is inherited, but possibly when it is sold. Nobody pays capital gains tax because the owner died or because the property passed to a beneficiary.

Any tax comes later, when the beneficiary sells, and a sale of an inherited home can be exempt, mostly when the sale settles within two years of the death. This is the law as read on 5 October 2026.

Is there tax when someone dies and the property passes on?

No. A capital gain or loss on an asset a person owned just before dying is ignored, and so is the gain or loss when the executor passes it to a beneficiary (Income Tax Assessment Act 1997, ss 128-10 and 128-15).

The beneficiary is taken to have acquired it on the day of death. The ATO's cost base of inherited assets page sets out what the beneficiary starts from.

What is the cost base of an inherited property?

It depends on when the person who died acquired the property, and on whether it was their home.

• On or after 20 September 1985: the beneficiary starts from the cost base the person who died had on the day of death.
• Before 20 September 1985, or a main residence that was not earning income just before the death and passed to the beneficiary after 20 August 1996: the beneficiary starts from the property's market value on the day of death.

A beneficiary who sells later works out the gain from that start, so the day of death and the papers that show the cost base or the value matter.

From 1 July 2027, how a later sale's gain is worked out changes for everyone, and the post on indexation explains it. The rules for an inherited property are not part of that change.

When is a sale of an inherited home exempt?

A home has no capital gains tax if the sale settles within two years of the death and either of these is true (s 118-195). Foreign residents are generally not entitled to this exemption.

• The person who died bought it before 20 September 1985.
• It was their main residence just before they died, and they were not using it to earn income then.

Renting it out during the two years does not matter. The ATO gives more time only for exceptional circumstances outside the owner's control, as its page on extensions to the 2-year ownership period says.

In the ATO's example, a flat bought in April 1992 had an owner who died in January 2025. His son rented it out and sold it 15 months later, with no capital gains tax.

What if the sale is after two years?

The sale can still be exempt if one of the same two tests about the person who died is met and, since the death, the home has been the main residence of their spouse (not one living apart from them), of someone the will lets live there, or of the beneficiary who sells it, and it has not earned income. Otherwise part of the gain, or all of it, can be taxed (s 118-200). The ATO's inherited property and CGT page has the detail.

What if the inherited property is a rental?

Renting it out does not take away the two-year exemption, but the test above still has to be met.

A property the person who died bought on or after 20 September 1985 and did not treat as their main residence just before they died meets neither test, so its sale is taxed, though part of the gain can still be exempt.

The gain is the sale price less the cost base, which starts as above and can include later eligible costs. One bought before that date, sold within the two years, is exempt even though it was a rental.

What should I keep?

• The date of death and the executor's papers that show when ownership passed.
• The cost base the person who died had, or a valuation at the day of death for a property they bought before 20 September 1985 or that was their main residence.
• What the property did after the death: lived in, rented or empty, and for how long.
• The sale contract date and the costs of selling.

PropRetire keeps each property's dates, cost base and owners together, so the capital gains tax calculator can work a sale from them. The help guide lists what the estimate reads.