The primary purpose of any investment or asset acquisition is to earn money above the capital. Interest on a fixed deposit, mutual fund returns, dividends, profit from asset transfers – they all are capital gains. In short, capital gains serve as an incentive to investors. Show
What if you end up selling a piece of land you have inherited or received as a gift from parents or ancestors? This can also give rise to capital gains based on how you invest or capitalize the asset. Let us understand its tax implications of capital assets on sale of gifted assets. General provision for capital gains computationThe sale of a capital asset held by you will result in short-term or long-term capital gains, depending on the duration for which you have held the asset. The duration for treating an asset to be short term or long term differs from asset to asset. For instance, a house property held for less than 2 years is short-term whereas if held for more than 2 years would be considered long-term. However, for listed equity shares, the short-term duration is less than 12 months and long-term duration is more than 12 months. Further, gains from short-term assets are determined by using the simple formula of: Sale Consideration – Cost of acquisition (Purchase Price) – Cost of improvement Whereas, gains from sale of long term assets are determined using the below formula: Sale Consideration – Indexed Cost of Acquisition – Indexed Cost of Improvement You may see that for long term assets, law provides taxpayers the benefit of indexation, which would help factor in the impact of inflation in price over a period of time. Capital gains on sale of inherited or gifted assetsWhile the provisions discussed above would apply to assets that have been purchased by the taxpayer, we also need to understand the tax implications when inherited or gifted assets are subsequently sold by the taxpayer. Capital gains or not?Any income that arises from the sale of a capital asset, irrespective of whether the asset was initially purchased or inherited, would be considered as capital gains. Determining Cost of acquisitionMoving on to the computation mechanism, when an asset is gifted or inherited, the taxpayer does not have a purchase price he can attribute to the asset. To address this, the law itself has discussed certain scenarios. This includes a case of gift or inheritance, where the purchase price of the previous owner would be treated as the purchase price for computing capital gains of the taxpayer. Example, Rahul’s father has gifted him a flat in June 2017. His father had purchased the flat in 2012 for Rs 40 lakh. Rahul proposes to sell this flat in September 2019 for a consideration of Rs 50 lakh. Therefore, Rahul would compute his capital gains from the sale of this flat by considering purchase price of his father i.e. Rs 40 lakh. Determining period of holdingMany court verdicts and tax tribunals have held that for gifted or inherited property (capital asset), the period of holding should be considered from the time the previous owner acquired it. Based on such period of holding, an asset would be classified as short term or long term. Therefore, if we have to apply this provision to the example discussed above, the period of holding of the property for the taxpayer, would begin from the year 2012 itself (year of purchase by father) and accordingly, the asset would be classified as long term and the taxpayer can avail himself of the benefit of indexation too. Frequently Asked QuestionsI sold a land in May 2019 which was gifted to me by Mother in the year 2009, which my mother purchased for Rs.50000. What will be my cost of acquisition ? and period of holding?Since you received the asset as a gift, your cost of acquisition will be the same as the cost for your mother and period of holding will start from the day when your mother bought the asset I received a house property as a gift from my father in 2006, he bought the property in 2004 and later in 2005 he made some improvements to the building, and sold the asset in Feb 2020. Can I consider the cost of improvements made by my father?Yes, you will consider the improvement cost made by your father and indexation benefit also will be available to you.
 File your returns in just 3 minutes 100% pre-fill. No manual data entry What is the basis of property received as a gift? To determine your basis in property you received as a gift, you must know the property's adjusted basis to the donor just before it was given to you, its fair market value (FMV) at the time it was given to you, and the amount of any gift tax paid with respect to the gift. For purposes of determining gain, you generally take a transferred basis when you receive property as a gift. This means that your basis in the property is the same as the donor's basis in the property. More specifically, if the FMV of the property at the time of the gift was equal to or greater than the donor's adjusted basis, your basis in the property immediately after the gift will be the same as the donor's adjusted basis at the time you received the gift. If the donor paid any gift tax, you should increase your basis by all or part of the gift tax paid, depending on the date of the gift. For example, your father gives you XYZ stock today that is currently worth $1,000. Your father has an adjusted basis in the stock of $500. Your basis in the stock, for purposes of determining gain on any future sale of the stock, is $500 (transferred basis). If the FMV of the property at the time of the gift was less than the donor's adjusted basis, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis, plus or minus any required adjustments to basis during the period you held the property. A different rule applies if you sell gifted property at a loss. If the FMV of the property at the time of the gift was less than the donor's adjusted basis, your basis for loss on its sale or other disposition is its FMV at the time of the gift, plus or minus any required adjustments to basis during the period you held the property. In other words, for purposes of determining losses, you use the lesser of the donor's adjusted basis or the FMV at the time of the gift as your basis. For example, your father gives you XYZ stock today that is currently worth $200. At the time of the gift, he has an adjusted tax basis in the stock of $500. After receiving the stock, you immediately sell it for $200. You do not recognize a loss because your basis in the stock was its FMV at the time of the gift, $200. What is the basis used to calculate a gain on the sale of gifted property?Your basis for figuring a gain is the same as the donor's adjusted basis, plus or minus any required adjustments to basis while you held the property.
What is capital gains tax on gifted property?The annual gift exclusion amount is $15,000 for tax year 2021 and $16,000 in tax year 2022. The lifetime gift exemption is $11.70 million in tax year 2021 and $12.06 million in tax year 2022. While gifts aren't taxed, the IRS may enforce a gift tax on any gifts you sell at less than fair market value.
Who pays capital gains on gifted?When gifting stock, the recipient assumes your cost basis and holding period. In other words, if you were to give a friend $12,000 worth of stock purchased five years earlier for $7,000, then they would be liable to pay long-term capital gains taxes on a profit of $5,000 should they sell straightaway.
What is the cost basis of gifted real estate?Your cost basis would be the same as the donor's cost basis if you received the property as a gift during the donor's lifetime because there's no step-up in basis. Your cost basis would be $100,000, even if the property is now worth $350,000 if the deceased purchased the property for $100,000.
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How do you calculate capital gains on sale of gifted property
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