Updated 10 October 2026
Death is not a CGT event. Under Division 128 ITAA 1997, tax is deferred until the beneficiary sells, and the cost base you inherit depends on what the property was to the deceased. Pre-1985 assets and the deceased's own home reset to market value at the date of death, which makes a date-of-death valuation the single most important document in the estate's tax file.
At a glance
- Death is not a CGT event; tax is deferred until the beneficiary disposes of the asset under Division 128
- Pre-CGT assets and exempt main residences take a cost base equal to market value at the date of death
- Selling an inherited main residence within two years of death can be fully exempt under section 118-195
- From 1 July 2027 the enacted reform makes the inherited cost base the starting point for indexation
- A retrospective valuation can establish the date-of-death value even years later
In this guide
No CGT on death itself
When a property owner dies, Division 128 rolls the asset over to the legal personal representative or beneficiary with no tax payable at that point. The CGT event happens later, when the estate or the beneficiary sells. What passes across with the property is a cost base, and which cost base depends on the deceased's history with the asset.
Which cost base you inherit
Section 128-15(4) sets the rules. Two outcomes cover almost every estate:
| What the property was to the deceased | Your first-element cost base | Valuation needed? |
|---|---|---|
| Acquired on or after 20 September 1985 (investment, rental, holiday house) | The deceased's own cost base carries over to you | Not for the cost base, but often for the estate accounts and to test the exemptions below |
| Acquired before 20 September 1985 (pre-CGT) | Market value at the date of death | Yes, essential |
| The deceased's main residence just before death, not then producing income | Market value at the date of death | Yes, essential |
The market value resets are the ones that create work. There is no contract price on death, so the figure has to come from a defensible valuation as at the exact date of death. Executors who skip this step leave the beneficiary to commission a retrospective valuation years later, when the comparable sales from that period are harder to assemble.
Every trigger event has its own day. Which date is the CGT valuation date lists them side by side.
For post-CGT investment properties, tracking down the deceased's cost base means finding the original purchase records, capital improvements and incidental costs, sometimes decades old. Where records are genuinely lost, a valuation-based reconstruction is often part of the answer, but the starting point is always the paper trail.
The two-year rule and PCG 2019/5
Section 118-195 gives estates a powerful exemption: if the property was the deceased's main residence just before death and was not then producing income, or it is a pre-CGT asset, a sale that settles within two years of the date of death can be fully exempt from CGT. The gain between death and settlement simply disappears.
Miss the two years and the exemption is not automatically lost. The Commissioner can extend, and PCG 2019/5 provides a safe harbour of up to 18 further months where the delay was caused by matters outside the executor's control, such as a challenged will, a complex estate, or delays in obtaining probate. Ordinary market timing, waiting for prices to improve, does not qualify.
Warning
Get the valuation even when you expect a full exemptionExecutors often skip the date-of-death valuation because the two-year sale will be exempt anyway. Then the sale slips past two years, or a beneficiary moves in, or the property is rented while the estate settles, and the exemption becomes partial. At that point everything is measured from a date-of-death value nobody obtained. A $297 valuation at the time is cheap insurance.
Worked example
Note
Worked exampleMargaret bought her Glenelg home in 1979 and lived in it until her death on 15 March 2026. Her son David inherits. Because the home is a pre-CGT asset, David's cost base is its market value at 15 March 2026: $1,240,000 per a date-of-death valuation.
David rents the property out and sells it in 2029 for $1,400,000, settling three and a half years after death, outside the two-year window and with income use, so no full exemption. His gain is measured from $1,240,000, not from 1979 values. The taxable gain before any concession is $160,000 plus selling costs adjustments. Without the valuation, David would be proving a March 2026 value from thin evidence, with the ATO free to argue a lower figure and a bigger gain.
Inherited property and the 1 July 2027 reform
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, enacted 26 June 2026, replaces the 50 per cent CGT discount with cost base indexation and a 30 per cent minimum tax from 1 July 2027 for individuals, trusts and partnerships. Inherited investment properties held across that date are caught by the deemed disposal and reacquisition in Subdivision 112-E, so beneficiaries holding an inherited rental will generally want a market value at 1 July 2027 as well, to lock the pre-reform portion of the gain into the old rules.
For a beneficiary this can mean two valuation dates on one property: the date of death, and 1 July 2027. Both are retrospective exercises if left too long. Both are routine if commissioned close to the date. Our 1 July 2027 valuation service covers the reform date; a deceased estate valuation covers the date of death.
For the 1 July 2027 date, the CGT calculator shows what a valuation is worth against the apportionment formula for the property's market and purchase year.
Getting the date-of-death valuation right
- The date is the date of death, not probate, not transmission, not settlement of the estate. Comparable sales evidence has to be drawn from around that date.
- An agent appraisal is not enough. The ATO's market valuation guidance treats valuations by professional valuers as more credible than appraisals, and estates are a common review target. A signed report from a Certified Property Valuer with comparable sales and methodology is the defensible standard.
- Desktop is usually fine. The property's condition at death can be established from records, photographs and listing history, so a physical inspection is rarely required. Reports are delivered in 24 to 48 hours.
- One valuation, several jobs. The same date-of-death figure typically serves probate, the estate accounts, distribution fairness between beneficiaries, and the CGT cost base.
Note
From our valuation filesA Perth home bought by the deceased in 1978 passed to two adult children in September 2022. They kept it as a rental and sold in November 2024, outside the two-year window. Because the home was pre-CGT in their mother's hands, their cost base was its market value at the date of death. We valued it retrospectively at $910,000 as at September 2022, so the sale at $1,020,000 produced a $110,000 gain rather than one measured from 1978.
Details are changed. This is a composite of typical files rather than one client.
Capital gains tax deceased estate rules when a beneficiary lives overseas
Most of the capital gains tax deceased estate rules above assume the beneficiary is an Australian resident. When the person inheriting lives overseas, two extra rules come into play, and only one of them is a surprise.
CGT event K3 is the surprise. If a post-1985 asset passes from an Australian resident deceased to a foreign resident beneficiary, and the asset is not taxable Australian property in the beneficiary's hands, the deceased is treated as having sold it at market value on the date of death. The gain or loss goes in the deceased's final return, and the estate pays the tax before anything is distributed. Shares, managed funds and units are the usual casualties.
Australian real estate is taxable Australian property, so K3 does not apply to a house or a unit. The property passes to the overseas beneficiary with the same cost base rules as for a resident, including the market value reset at the date of death for the deceased's home or a pre-1985 property. The second rule bites later: when the foreign resident beneficiary sells, the main residence exemption is generally lost, the 50 per cent discount is not available for the period of foreign residency, and the buyer must withhold foreign resident capital gains withholding from the price unless a clearance certificate or variation is in place.
The date-of-death valuation carries the same weight either way. It fixes the cost base the overseas beneficiary will be taxed from, and it is the figure an executor needs in the estate file where the estate holds both property and K3 assets. Our deceased estate valuation reports the market value as at the date of death for exactly this purpose. When the overseas beneficiary later sells, the purchaser must also withhold 15 per cent of the price at settlement; see our guide to foreign resident capital gains withholding.
For the rules on the discount, indexation and the minimum tax that apply after the reset, see our guide to the capital gains tax changes from 1 July 2027.
Handling a deceased estate?
Date-of-death valuations prepared by a Chartered Accountant and Certified Property Valuer. $297 residential, $595 commercial, incl GST, delivered in 24 to 48 hours, Australia-wide.
Start your orderHow it worksBetween death and sale: choices that change the tax
What happens to the property while the estate settles often decides how much of the exemption survives.
- Renting it out. Income use after death does not kill the two-year exemption for the deceased's former home, provided settlement lands inside the window, but it complicates any partial exemption calculation if the sale runs late. Every rented day after the two years is measured against the date-of-death value.
- A beneficiary moves in. If the dwelling becomes the main residence of a beneficiary, the spouse, or someone granted a right to occupy under the will, the exemption can extend well past two years while they live there. The date-of-death value still anchors the calculation if their occupation later ends and the property is rented or sold with a taxable component.
- Joint tenants. Property held as joint tenants never enters the estate. The survivor takes the deceased's interest by survivorship, and section 128-50 applies the same cost base logic to the inherited half: the deceased's cost base for a post-1985 interest, market value at death for a pre-1985 interest. Couples who bought before 1985 routinely need a date-of-death valuation on the first death, decades before anything is sold.
- Selling from the estate vs transferring first. Whether the executor sells or the property passes to the beneficiary who then sells, Division 128 produces the same cost base. The difference is administrative, not a tax planning lever.
Common questions
Do you pay capital gains tax on inherited property?
Not on inheriting it. Division 128 defers CGT until the property is sold. Whether the eventual sale is taxed depends on the cost base you inherit, whether the two-year main residence exemption applies, and how the property was used after death.
How is the cost base of inherited property calculated?
For property the deceased acquired on or after 20 September 1985, you inherit their cost base. For pre-1985 property, or the deceased's main residence that was not producing income just before death, your cost base is the market value at the date of death under section 128-15(4).
What is the two-year rule for inherited property?
Section 118-195 fully exempts the sale of the deceased's former main residence, or a pre-CGT dwelling, if settlement occurs within two years of death. The Commissioner can extend, with an 18-month safe harbour under PCG 2019/5 where delays were outside the executor's control.
Do I need a valuation for an inherited investment property?
Often yes. Even where the deceased's cost base carries over, a date-of-death valuation supports the estate accounts and beneficiary distributions, and if the property is held past 1 July 2027 a market value at that date will also be needed under the enacted CGT reform.
