Buying 50% of inherited property

Hi all!!

My brother and I inherited a house from our parents 50-50.
My question is that if I offer my brother to buy his 50% and borrow that 50%, would the interest on that loan be tax dedactable? And would the property be regarded as IP or what?

Regards

Alex
 
Hi Alex

If the property is used a renter then I would think that the 50 % loan required to buy the other share would be clearly deductible since you are deriving an income from it.

ta

Rolf
 
I'm wondering if all you need to do is to gain a valuation of the property (which presumably you would have to do in order to determine how much you were going to pay for your 50%), which then forms your CGT cost base when you sell it. Problem is your brother will want 50% of fair market value, whereas for CGT purposes I think you are better off having a higher initial valuation, meaning less of an increase later for CGT purposes.

Something was mentioned on this forum about a 6 year "something" in respect of CGT when a PPOR is converted to IP - not sure what it was or if it applies in this case.

Kevin.
 
As I understand it, there a CGT issues attached to inherited assets dependant on the time lapsed at which they are disposed of. Also CGT is not necessarily based on the price paid to your brother but the market value, so you could get a higher valuation for CGT cost base than what you use for paying out your brother. Check this with an accountant, I am not one.
 
Dionysus you wrote:

Also CGT is not necessarily based on the price paid to your brother but the market value, so you could get a higher valuation for CGT cost base than what you use for paying out your brother.

So will this mean that I/we will have to get 2 valuations, one to see the actual value of the property and the second for the CGT?

And if so, how do you get a higher valuation?

Regards

Alex
 
Research past sales in the area and use this information to support your thoughts on the current value when briefing the valuer as to why you need a valuation. Yes, you could be approaching two different valuers with different sets of supporting data and differing briefings.
 
Hi Alex,
perhaps you could agree with your brother to have 2 valuations done, average the value, pay him half of this. Then when you sell it, use the higher valuation as your starting point.
Macca
 
Thanks for your ideas..
Some very creative thinking....

That's why I'm a regular on this forum for the last 18 months, although I don't post very often...

Best regards to all.

Alex

:)
 
Alex,

Re your CGT question, I'd post it to the accounting forum (and get solid legal advice). Deceased estates can be pretty complex.

Bob
 
Originally posted by AlexE
Hi all!!

My brother and I inherited a house from our parents 50-50.
My question is that if I offer my brother to buy his 50% and borrow that 50%, would the interest on that loan be tax dedactable? And would the property be regarded as IP or what?

Regards

Alex

HI Alex

Yes, the interest on the borrowed money will be tax deductable to you.

Now the CGT is the hard part and so your record keeping will be evry important here.

Issue 1. When did your parents buy the house? Was it pre CGT or post CGT?

Was it their PPOR?
What was the mrket value at the date of death?

The answers determine the cost that you can use to reduce your tax in the future when you sell your share of the property.

Issue 2. What is the market value at the time that you buy your brother's half from him?

Effectively, you will end up with two halves of the same asset with two completely separate "cost bases" for each half. It is an accounting nightmare . . .

You might be wise to get some particular advice given your circumstances.

Have fun and I apologise for being technical here.

Dale
 
Dale

Thank you for the advise.
It hasn't happen yet but it will in the near future...

So.. I'm cooking before I get hungry..as they say, and it's good to know how to handle the situation when arise.

To answer your questions,yes it was bought pre CGT and it was PPOR.

Now my next question is another senario:
What if the situation was between my wife and her brother?
Lets say that they arrived on the value of the house e.g 200k. Now if I come in to the party to bay the property off them, under my name but get a loan on both names my wifes and mine, would that be a good move or not? Will they have to pay any CGT after it sold?

Thanks in advance

Alex
 
Originally posted by AlexE

To answer your questions,yes it was bought pre CGT and it was PPOR.

Now my next question is another senario:
What if the situation was between my wife and her brother?
Lets say that they arrived on the value of the house e.g 200k. Now if I come in to the party to bay the property off them, under my name but get a loan on both names my wifes and mine, would that be a good move or not? Will they have to pay any CGT after it sold?


Hi Alex

Your brother and you are deemed to have acquired one half each of the property at the date of your parent's death and at the market value at that date.

As I mentioned earlier, when your brother sells you his half, you are deemed to acquire that half at the market value at the time of the sale.

Again, you have two halves of one asset and with each having a different cost base.

As to the second scenario, if you buy a house from your wife and her brother, the title would be in your name. Therefore, the loan is taken out to buy that house regardless of whose name is put on the loan documentation. Providing the property is available for rent, the interest on that entire loan is tax deductable.

Alex, in both this scenario and the earlier one, you would be wise to pay a valuer to provide a written valuation to protect you against the tax office assessing you on a "different" market value.

Have fun and good luck

Dale
 
Thanks for the advice Dale.

Now I'm going to print the wholw thread to keep it in my files.

Thanks again to all.

Alex
 
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