Inherited house bought by the father and you want to sell it? Income tax rules explained
My father bought a house in 1995. He died in 2009. We are three brothers who inherited the house equally. I bought one brother’s share in 2013 and another brother’s share in 2014. Now I have become the owner of the whole building. How would capital gains be calculated if I sold the entire building in the current year?
In the case of property acquired by gift or inheritance, the acquisition cost for the taxpayer is the cost paid by the previous owner who paid it. So for your 1/3 share that you inherited, your cost would be the proportional cost paid by your father. For assets acquired before April 1, 2001, the taxpayer has the right to substitute the fair market value of the asset as of April 1, 2001.
Since the house was acquired before this date, you have the possibility of taking the fair market of 1/3 of the share of the house on April 1, 2001 for the calculation of the capital gains. To determine the fair market value of the home on April 1, 2001, you must obtain an appraisal report from a licensed appraiser. Under no circumstances may the fair market value of the property exceed the circle rate or stamp duty rate.
Although the law provides for the benefit of indexation from the date on which you became the owner of the property, various income tax courts have allowed the benefit of indexation from the date on which the previous owner who paid for it acquired it. So you can safely apply the cost inflation index to the fair market value of the house for your 1/3 share from April 1, 2001.
Regarding the cost and indexation of the remaining 2/3 of the shares in the house, your acquisition cost will be the amount you paid and the benefit of indexation will apply from the year to during which you acquired the respective shares in the property.
Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant on Twitter