Sale of joint property at a loss: How to take maximum tax advantage

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June 14, 2021 7:14 PM

In case of joint ownership, all the joint owners may share the capital gain or capital loss as per the proportion of their holding in the property.

house property, sale of house property, long-term capital loss, short-term capital loss, capital gain tax, adjustment of capital loss, carry forward of capital loss, joint ownership, maximum tax advantage, income taxAny property held for a period of more than 24 months would be a long term asset.

Sale of a house property generally results in gain. However, in case of sale in an emergency situation, the owners may have to sell the property at a loss. Such gains and losses may be of two types – short term and long term.

Sale of a house property is considered short term from the income tax point of view, if the property is sold within 24 months from the date of purchase/registration, and long term, if it is sold after the completion of 24 months.

A short-term capital loss may be adjusted against both short-term and long-term capital gains, while a long-term capital loss may only be adjusted against long-term capital gains. However, the remaining part of both short-term and long-term losses, if any, may be carried forward up to 8 years from the year of sale.

In case of joint ownership, all the joint owners may share the loss as per the proportion of their holding in the property.

“Any property held for a period of more than 24 months would be a long term asset and consequently, any gain/ loss arising from the same of such property is treated as long term capital gain or loss. In case of a house property which is co-owned or held by two or more persons and their shares in such property are definite and ascertainable, the loss arising from the sale of the property can be claimed by such respective co-owners in proportion to their co-ownership share against their respective capital gains or excess capital losses, which is not set off can be carried forward for adjustment in the subsequent 8 years by them,” said Dr. Suresh Surana, Founder, RSM India.

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However, if a property is purchased by a person and get it registered in joint name with his/her spouse, who is a housewife, either both of them may claim the share of gain/loss or the husband, who actually made payments, may claim it wholly.

“The capital loss would be apportioned between the husband and wife in their co-ownership ratio i.e. equally as in the given case where both the husband and wife are joint holders in a property. In case, where the co-ownership share of husband and wife is not equal, then in the ratio of the sum contributed by them initially for purchase of such house property can be taken as the basis for determination of the share of co-ownership. The losses can then be accordingly claimed by the husband and wife, even if the payment has been made equally to both the joint owners. In case, if one of the co-owners has not contributed any sum towards the purchase of the house property, then the other co-owner may claim the entire loss. It is notable that merely by registering the name in the registry of property as a joint owner does not in itself make such person co-owner of the house property for income tax purposes,” said Dr. Surana.

So, in case of loss from sale of a house property, both the joint holders should claim the share, only if both of them have the prospect of adjusting it against capital gains. Otherwise, if only the earning co-owner has capital gains, against which the capital loss may be adjusted, it will be better that the entire loss is claimed by that co-owner.

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