The tax effects of investing in real estate, including capital gains, rental income, and ways to save on taxes.
Real estate is still a popular way to invest, especially in residential properties, because it has two main benefits: regular rental income and the value of the property going up over time. But it’s important to know that these kinds of income are not tax-free. Whether you rent the property out or sell it down the road, you will have tax obligations.
When someone who has owned a property for more than two years sells it, they have “long-term capital gains,” which are taxed at 20% after the indexation benefit. On the other hand, if you sell before 24 months, you’ll have short-term capital gains, which are taxed based on how much you make.
There are ways to save money on taxes, which is good news. Section 54 of the Income Tax Act says that you don’t have to pay tax on the money you get from selling an old property if you use the money to buy a second home. This benefit, however, only applies to long-term capital gains, assuming that the seller is looking for a new home for themselves.
There are ways to save money on taxes, which is good news. Section 54 of the Income Tax Act says that you don’t have to pay tax on the money you get from selling an old property if you use the money to buy a second home. This benefit, however, only applies to long-term capital gains, assuming that the seller is looking for a new home for themselves.
It’s important to remember that Section 54’s tax exemption only applies to the purchase or building of a residential property, not a commercial one. For land, you can get a tax break if you use the capital gains tax money to buy a plot and build a house. But getting a tax break for buying land on its own is not possible. From the financial year 2023-2024 on, residential properties with capital gains of up to Rs 10 crore will be exempt from tax. Profits above this amount will be taxed as long-term capital gains.
To get the tax break, the new property must be bought within two years of when the old property was transferred, and construction must be finished within three years. You can still get the exemption even if you buy a new property a year before selling your old one.
On the other hand, if you get money from renting out a property, you have to put that money on your tax return under “Income from other sources.” This income is added to the rest of your income, and you must pay taxes based on the tax slab that applies. In order to stop people from not paying taxes on rental income, PAN card information is now required for rentals that bring in more than a certain amount.
Recommended Readings:
Two Google Engineers Commit Suicide; One Jumped From The Building Where They Worked, What Caused It
Income Tax Refund: New Update! Why Your Tax Refund Might Get Delayed, Know Here
A Different Layoff! Why Has Pwc, One Of The Big 4 Accounting Firms Fired Eight Employees?
