Joint Ownership of Property
Purchasing a “Dream Home” is one of those life achievements that tops everyone’s bucket list. However, buying a house is a big decision and comes with different considerations and is sometimes burdensome too. But it is rightly said that the only way to carry a burden is to share it. And this has been proven absolutely right in the case of purchasing a property together.
Whether it’s tax benefits or hassle-free succession of assets, there are several advantages to jointly owning property. However, it’s important to note that ‘ownership’ in the property is a prerequisite to avail any tax benefit against the property.
Read on to learn more about what joint ownership is and why it’s a sensible alternative to traditional solo second homeownership.
What is Co-ownership of property?
Co-ownership, or joint ownership, is when two or more persons hold title to the same property. A house can be held jointly with anyone not necessarily a spouse or parent, but it can also be with a relative, friend, or even a business associate.
Types of co-ownership
Homebuyers must familiarize themselves with the basic principles of co-ownership of property and what are the types of co-ownership that exist. The following are the common forms of co-ownership:
1. Joint Tenancy
For a joint tenancy to take place, each joint tenant must obtain equal shares in the property through the same sale deed and at the same time. The concept of joint ownership is based on survivorship. In this type of co-ownership, the interest of a deceased co-owner is passed on to the other joint owners of the said property.
2. Tenancy-in-common
Tenants-in-common is when the shares of the co-owners are not explicitly mentioned. While the co-owners are alive, every co-owner is considered an equal partner. But in case of the death of a co-owner, the ownership will be passed on to whosoever is mentioned in the will of the deceased person and not to the other co-owners.
3. Tenancy-in-entirety
This form of ownership is exclusive to properties owned by legally married people. The spouses bound by tenancy in entirety, cannot sell the property or transfer their share in the property to a third party, unless by mutual agreement. A contract on tenancy in entirety is broken in case of divorcement, death, or mutual agreement.
4. Coparcenary
This concept of coparcenary is applicable only in the case of a Hindu Undivided family structure. This form of co-ownership allows even an unborn child to have an equal share in a HUF property. After his birth, a coparcener becomes a shareholder of the property jointly held by a HUF. At the time of his death, his undivided share in the property passes on to his heirs, and not among the other coparceners.
Let us take a quick glance at the Advantages and Disadvantages of co-ownership of the property.
Advantages of Co-ownership
Increased loan eligibility the bank or loan issuing authority would consider the combined income of all the co-owners. If there is more than one applicant, lenders tend to favorably consider the option as chances of bad debts minimize.
Eases the repayment process as the burden of EMIs will be split.
Relaxations in stamp duty for women buyers, women as co-owners can benefit from this.
Succession is simple and easy as compared to single ownership.
Disadvantages of Co-ownership
Documentation is a tedious process when it comes to co-ownership.
Credit score can be a big disadvantage as in case of any default, it will reflect in the credit score of all the joint-owners as they are jointly liable to pay the property loan.
What are the tax benefits available?
Home loans
When purchasing a house property or any property for that matter, most people prefer going for home loans. The reason behind this is that if a person registers jointly for availing the home loan, they can get benefitted in many ways and can claim deductions on stamp duties, registration charges, interest, principal amount, repayment, and many of which are discussed above as well.
Conditions to claim Tax benefit in case of Home Loans
As mentioned above tax benefits can be availed by owning the property jointly, but there are some conditions that need to be met.One must be a co-owner of the property
The names of the co-owners should be mentioned in the property papers of the said property. It is also essential that they contribute to the purchase of the property.
To claim the tax benefit, one must be a co-owner of the said property. It may happen that a loan is taken jointly but the borrower is not an owner as per the property documents. In such a case, one cannot claim tax benefits.One must be a co-borrower of the loan
Besides the condition that one should be an owner, it is important for co-owners to be the co-borrowers as well. With this being said it is imperative that their names must be mentioned in the loan agreement. It must be noted that owners who are not borrowers and do not contribute to paying the EMI amount shall be ineligible/devoid of any kind of tax benefits.
The construction of the said property must be completed
All the available tax benefits can only be claimed when the construction of the said property has been completed. These benefits are not available for property that is under construction.
Rent Earned for co-owned property
A 30% deduction is applicable to the rent obtained from the property. This deduction is applicable to the co-owners of a property and the income from the property can also be equally split as per their ownership ratio.Capital gains
If a property is co-owned, then the co-owners must keep a check on the capital gains from it especially in the case of the sale of the property. The capital gains from the sale of the property are usually adjusted amongst the co-owners depending on their ownership ratio.
The bottom Line
Be it co-ownership or sole ownership, a real estate investment can provide steady cash flow, substantial appreciation, tax advantages, making it a sound investment.
Of course, just like any investment, it's important to consider certain factors before you invest in real estate and invest wisely.