If the house property is received as a gift from a relative, the first incidence of tax will arise, when you sell the property. The cost for the purpose of income tax, shall be the taken as the cost that was paid for the property by any of the previous owners. The profits shall be treated as short-term or long-term, depending on whether the aggregate of your holding period as well as that of the previous owner who had actually paid for it, is more than 36 months or not.
If the holding period as computed above is less than 36 months, the profit accrued on the sale of such property, shall be treated as short-term and will be added to your regular income and taxed at the applicable slab rate. One can take back a gift but this aspect must be considered and covered in the registered gift deed. Under Section of the Transfer of Property Act, revoking the deal will not be possible, unless the donor specifies in the registered contract that he keeps with himself the rights to take back the gift.
This means that at the time of drafting the gift deed, the donor has to clearly mention that even after the gift deed is executed, the donor will still hold the right to revoke the gift deed and take back the gift from the donee, if and when he wishes to do so. Gift to people other than relatives: Under the Indian laws, gifts between non-relatives are not acknowledged as legal.
This assumption is based on the premise that the owner would charge a consideration from someone who is not known to them. In any case, the deed will have to be registered as a sale deed. Retraction of gift: To retract a gift deed, the donor will have to prove that he was duped or forced to execute the deed. There is no other way to take back a gifted property.
Gifts received in marriage: Gifts that are received from relatives on the occasion of a marriage, through the execution of a will or inheritance, are not taxed. Gift validity: A gift deed is valid if it is duly executed and the transferor is the absolute legal owner of the property. Another condition for the gift deed to be valid, is that no orders of courts should prevent such a transfer. Tax liability on gift deeds: The tax liability does not arise on gift deeds, for someone who has received the same on the occasion of marriage, or by way of inheritance, or from a local authority.
The same is also true for gifts received from a foundation, trusts, educational institutions, medical institutions, etc. You can gift your property as you like: You can only gift your self-acquired property of which you are the sole owner. Any shared property cannot be gifted. This is particularly true of ancestral property. Since it is a gift, there cannot be any tax implications: The receiver of the gift will have to pay taxes on high-value gifts. Since all properties are invariably high value gifts, stamp duty implications will arise.
Anyone can gift a property: Only a person who is in an absolutely mentally and emotionally fit condition can gift a property. Otherwise, the gift deed will become null and void. Since a percentage of the property value has to be paid as the stamp duty on gift deeds, the calculation would be based on the percentage that is charged on gift deed registrations in a state.
The income limits that apply to each tax rate can change each year, because they're adjusted for inflation. Ask the donor to provide you with the cost basis of the property and to let you know the date it was originally purchased. Try to obtain a copy of an escrow statement to document the amount and the date of the purchase. You'll also want to get an estimate of the fair market value of the property on the date of the gift transfer, because market value can sometimes come into play with gain or loss calculations.
This estimate can be as simple as arranging for a property appraisal. Consider living in the home for at least two of five years before selling it if you receive real estate as a gift. Other rules apply as well. You might consider a Section exchange to defer the tax if the property is being rented out. If you are inheriting a property, the person who is passing the property down to you can perform a step-up in basis adjustment in which they pay the difference between the value when it was originally purchased and its worth at the time of adjustment.
This can greatly reduce the inheritor's tax liability. If you have been gifted a home, consider living in it as your primary residence to help you reduce the capital gains taxes that apply to the home's sale. This is referred to as the 2-out-of-5 rule, but be aware of rule exceptions if you are hoping to use it in the future. Accessed Oct.
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List of Partners vendors. Taxes Tax Planning. Table of Contents Expand. If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. When the property is transferred as a gift, while the previous owner is still alive, the previous owner's original basis is transferred to the new owner, who must apply the original basis when calculating the capital gains tax realized upon the new owner's eventual sale of the property.
Under federal gift tax rules, the recipient of a gift takes the donor's tax basis. So your capital gains tax basis will be whatever your mother's tax basis was immediately prior to the gift. I just found this thread. I have a question - what happens to depreciation recapture? Or does the accumulated depreciation goes with the property to the new owner who has to report it when they sell the property?
Thank you for answering this specific question. As stated above, the basis of the gifter is transferred to the giftee. This includes the depreciation. I purchased my house in for 52K and lived there until It was paid off in so there was no mortgage on it. In , I moved in with my son at his house and rented my main house the subject property off and on until last year. The current value of the property is probably k. What is my tax liability if any?
Do I need to file form ? Can you confirm whether TT supports this form? Here are specific answers to your specific questions, without going around your elbow to get to your thumb. That form is not too hard to do by hand in this case. That is correct. My mother also claimed depreciation on the rental property during the years under her ownership.
What capital gain? I think you are referring to the depreciation your mother has already taken on the property. The answer to your question is no, she does not recapture that depreciation or pay taxes on. You are the one as the recipient of the gift, that will pay taxes on it in the year you sell the property. When your mom gifted to the property, she gifted you everything associated with that property, to include all prior year's depreciation she has already taken.
Does all the depreciation now work back in her tax return to pay more tax? Bottom line is, you are the one who will pay tax on that depreciation arleady taken. But you will not pay it until the tax year you sell the property.
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