Capital gains on sale of inherited joint house property

Tax planning 1146 views 2 replies

V Venkatesh

Consultant

29 Points Joined April 2009

My grandfather built a house in 1965. He died in 1977 and left a Will bequeathing this property to our mother (she was his only child). Our mother passed away in 2004. She left a Will passing on the property equally to myself and my two younger brothers (she had three sons).

Our family has been occupying this house continuously for over 30 years and my parents had made several additions to the house over time, but I do not have any record or evidence of the money spent on these improvements. Except for the original sale deed for the Plot (for a very small amount), I could not find any papers relating to the cost of construction.

In Municipal, Electricity and Water records, the house is still in the name of my grandfather.

This property is now very valuable and we (the three brothers) are considering selling the property outright to a developer.

Grateful for your suggestions on the following points:

(a) How can we compute the Capital Gains in the absence of any records showing cost of construction and cost of the improvements?

(b) Each of us brothers will be receiving one-third of the sale proceeds. I presume that each of us will be liable for Capital gains on our share. Will all three of us be entitled to Capital Gains exemption by investing our respective shares in other house property? (Will each of us have the choice to pay the tax, or invest in Capital Gains Bonds, or re-invest the proceeds to buy another property?)

(c) We are planning to mention each persons' share of the sale proceeds clearly in the Sale Deed and ask the Buyer to give us three separate cheques, which we will deposit into our respective bank accounts. Any other care that we should take to ensure that there will be no complications from the income tax angle?

(d) Do we need to mutate the property in municipal records in our joint names before selling it? I presume that this is not required. The Wills and the Joint Sale Deed should be adequate evidence of our joint holding of the property. Is that correct?

Replies (2)

Mihir

Wealth Manager

5293 Points Joined December 2008

Mere writing a Will is not sufficient. The Will is required to be registered and probated from a court. If the Will is already probated, then mutating the records at the municipal, electricity and water will not be a problem.

There are times when cost of construction is unknown when the property is very old. In such cases, valuation can be done on comparison method. Comparing the valuation of a similar property in the same locality. You could call a valuer and ask him the valuation of the property for the year 2004, and accordingly you can come to an estimate of the capital gain. An independent valuer is better then a valuer recommended by a builder. However, since you have the value at which the property was originally bought, that would give a better estimate of the value of the property considering the growth rate of that locality.

Separate payments toward sale of the property can be made since all three brothers/legal heirs are the true owners of the property, and will have to file separate income tax return and their own capital gain computation.

V Venkatesh

Consultant

29 Points Joined April 2009

Thanks. I am afraid we are deviating from the main topic, but to my knowledge, registration of a will is not necessary. A properly handwritten and witnessed Will is perfectly valid in law. In my case, my grandfather's will is handwritten, and my mother's will was typed. Neither will has been registered.

Also, I checked with a Lawyer and was told that Probating the Will is not required, unless one is apprehensive about a dispute from any other heirs or claimants to the property. I will be grateful is someone can clarify this. Can we not pass on a valid title to a buyer using the above two Wills, without having to Probate them?

At this point, my real question is whether we should spend the time and money to mutate the property in our joint names in the Municipal records if we are anyway selling the property in the near future. We do not want to go through this trouble, unless it is necessary for any reason. I would like a confirmation that the name in the Municipal records has no bearing on each of us three legal heirs being able to claim separate exemptions by reinvesting our invidividual shares.