June 1, 2023

Can I buy two residences with the proceeds from the sale of one residence to claim the long-term capital gains exemption along with my children? One property was purchased just 1 month prior to the sale and the other is planned to be acquired within 2 years from the date of sale using all proceeds from the sale. If not, please tell me how I can proceed to ensure that benefits are transferred to my son and daughter without any income tax consequences for me or my children in the event of my death.

To take advantage of the exemption from long-term capital gains arising from the sale of a residential home, you must invest only the indexed capital gain from the sale of an existing home, and not all of the consideration from the sale. To qualify for Section 54 benefits, an investment must be made in only one home, and if an investment is made in more than one home, you must select the home for which you want to apply for an exemption.

However, according to various court rulings, if more than one apartment is used as a unit, such as adjacent apartments or duplexes in the same building, you may qualify for Section 54 benefits even for investments made in more than one apartment. There are no restrictions on purchasing a new property in your joint name and that of your son or daughter in order to claim Section 54 tax exemption. Which means you must invest the required long-term capital gains in the home. Your son or daughter can be co-owners in the agreement even if they don’t put any money into the property. In case the full capital gain cannot be invested to buy a home, you can invest up to Rs. 50 lakh in capital gains bonds of said financial institutions within six months from the date of sale of the house.

In order for the property to pass freely to your son and daughter after your death, prepare a will indicating the share of your son and daughter in all your property, both movable and immovable. Your son or daughter will not have to pay tax on the inheritance of property, but may have to pay tax on the sale of property.

(Balwant Jain is a tax and investment expert and can be reached at [email protected] and @jainbalwant on his Twitter handle)

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