Sell property and gift proceeds or gift property then sell

Tax queries 4095 views 5 replies

calvin hobbes

Finance Professional

43 Points Joined July 2013

Dear All,

Let's say Mrs A has inherited a property from her Late husband (who bought it 30 years back and passed away 15 years back). Now she wants to sell the property and wants to buy a new property but in her son's name?

What is the best possible tax saving alternative?

Should she first sell the property, get the proceeds from buyer and gift the proceeds to the son to further buy a new property in his name within 6 months? In this case, since the end use of the money is to buy another property purchase, would capital gains need to be paid by the mother or son?

Should she gift the property to the son first ( i guess stamp duty will need to be paid on this, need clarification though) and then the son should sell it further and use the proceeds to buy another property? But since the son would purchase property within 2-3 months would he need to be short term capital gains tax?

Should the mother sell the property first, buy another property within 6 months and then gift the 2nd property to the son. But in this case, i guess the stamp duty will have to be paid two times, once by mother and again by son at the time of gift. In this case, can the son be co-applicant to the homeloan if required for 2nd property purchase?

Though the query is a bit long but I have provided most of the information so that it is easier to answer. Thanks in advance

Replies (5)

Rajagopalakrishnan R

PARTNER

1434 Points Joined May 2010

Option 1 is not recommended as the capital gains tax will have to be paid by the mother.

Option III is also not recommended since she cannot transfer the property within 3 years of purchase. Whether transfer includes gIft is a subject matter of debate, but grey area, so better avoid.

Option II is best as the outgo would only be the stamp duty and regisrtration charges, which in most states is a concessional rate for gift by parents to children. The question of short term capital gain for the son does not arise as the in case of a gift, the period of holding will be reckoned including the period of holding by the donor.

Mihir

Wealth Manager

5293 Points Joined December 2008

She should not sell. She may gift the property to her son by making a gift deed duly stamped and registered. After the transfer, the son may sell the property and then the capital gain will arise in his name. He may pay the tax or buy another property in his name and claim exemption. If there are other legal heirs, then that issue will have to be taken into account.

calvin hobbes

Finance Professional

43 Points Joined July 2013

Originally posted by : Rajagopalakrishnan R
	Option 1 is not recommended as the capital gains tax will have to be paid by the mother. Option III is also not recommended since she cannot transfer the property within 3 years of purchase. Whether transfer includes gIft is a subject matter of debate, but grey area, so better avoid. Option II is best as the outgo would only be the stamp duty and regisrtration charges, which in most states is a concessional rate for gift by parents to children. The question of short term capital gain for the son does not arise as the in case of a gift, the period of holding will be reckoned including the period of holding by the donor.

So in option 2 short term capital gains tax will not be applicable since the period of holding will be considered as holding period of mother as well not only son.

But why not option 3, since in this the stamp duty costs will not be involved on selling original property by mother?

calvin hobbes

Finance Professional

43 Points Joined July 2013

Originally posted by : Mihir
	She should not sell. She may gift the property to her son by making a gift deed duly stamped and registered. After the transfer, the son may sell the property and then the capital gain will arise in his name. He may pay the tax or buy another property in his name and claim exemption. If there are other legal heirs, then that issue will have to be taken into account.

But in this case stamp duty will have to be paid two times, once when the property is gifted to the son and then once the new property is purchased by the son.

If she sells first property directly and invests in another one with joint ownership with the son, then stamp duty will only be paid on the next purchase right?

calvin hobbes

Finance Professional

43 Points Joined July 2013

Dear members

Appreciate if someone may guide on this whether it makes sense to pay duty two times (once at time of gift and second while purchasing new property) ?

or mother should buy second property jointly with the son to save duty on gift?

or can the mother just pay from the proceeds of first property towards new property which is only in the son's name?