When you sell house or land, you have to pay tax on the money you make from the sale. This is called “capital gains.” If you sell a property after at least two years of owning it, it’s called “long-term capital gains.” For this, you pay a fixed tax rate of 20 percent.
The tax you pay on the profit is calculated after considering things like inflation (how prices go up) and the cost of buying the property when you first got it. This is called “indexation.” Indexation makes your cost higher and your profit lower, which means you pay less tax.
People who are in the 30% tax bracket also get the benefit of paying a lower tax rate of 20% for long-term capital gains.
Here are some ways to save on the tax you pay when you sell a property:
Use Indexation Benefit: One way to pay less tax when sell house is to use the indexation benefit. This adjusts the original cost of the sell house to account for how prices have gone up over time. This lowers the profit you make and the tax you have to pay. You can use this benefit if you’ve owned the property for at least two years.
Joint Ownership: If you shared ownership of the property with someone else, you can divide the profit from the sale between you and the other owner based on how much each person owns. This might help both of you use the tax exemption available to reduce the overall tax.
Reduce Selling Expenses: When calculating the profit from selling, you can subtract certain expenses like the fees you paid to the people who helped you sell the property. This lowers the profit and the tax.
Living and Improvements: If you live in the sell house for more than two years before selling, and you have receipts for any improvements or renovations you made to the property, these costs can be added to the original cost of the property. This can help reduce the taxable profit.
Buy Another Property: One common way to pay less tax when selling a property is to use the money you made from the sale to buy another property. You don’t have to pay tax on the profit if you do this. There are rules, like buying the new property within a certain time frame.
Remember, these are just ways to legally pay less tax when selling a property. It’s a good idea to talk to a tax expert to understand what applies to your situation.