Can capital gains be used to settle an old house purchase loan?

A house purchase loan was taken in 2005, and a capital gains was got in 2008 by sale of a different property. I understand that capital gains can be invested in another capital investment to avoid paying tax. can I use the capital gain to repay the loan for a house drawn in 2005 and seek exemption from capital gain? If so, under which rule?

Can capital gains be used to settle an old house purchase loan?
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3 Replies to “Can capital gains be used to settle an old house purchase loan?”

  1. You are referring to a 1031 exchange. This will not work in your situation. You must purchase a replacement investment property into which those ‘capital gains’ can be rolled. The replacement property must be purchased within specific time frames of sale of the first property.

  2. Long Term Capital Gain from the Transfer of Residential House Property (Section 54)
    The exemption under the Section 54 is available only to an individual or a HUF who transfers (or sells) a residential house/property that results in a long-term capital gain, and then invests the amount of gain in acquiring a new residential house. This exemption is available subject to fulfillment of the following requirements:
    (i) The transferor shall be an individual or the HUF,
    (ii) The asset to be transferred must be of long-term capital asset, being buildings or lands appurtenant thereto, being a residential house,
    (iii) The income from such residential house shall be assessable under the head “Income from House Property”,
    (iv) The transferor assessee should purchase or a residential house in India within a period of one year before or two years from the date of transfer or construct a residential house within three years from the date of the transfer of the original house. (Construction must be completed within these 3 years.), and
    (v) The new house property purchased or constructed has not been transferred within a period of three years from the date of purchase or construction.

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