The Property and other fixed assets category does not include the home you live in but includes property purchased with the intention to make profit from reselling. In addition, the value of leased property is not subject to Zakat. Only the rental income is subject to Zakat.
Is Zakat due on the house I live in?
There is no Zakat due on the house that a person owns and lives in or in the house that he or she owns but their dependents (wives / children etc.) live in.
There may, however, be Zakat applicable on any other property or building that a person owns.
Use of property
The Zakat that is due and obligatory depends on the use of the property and building that a person owns:
Living in the property – No Zakat due.
Using the property for business and trade – No Zakat is due on the property itself however there is Zakat due on business goods and profits from the business
Rental income: whatever is left over from your rental income on your Zakat date after any expenses, maintenance, mortgage and so on will join the rest of your cash balance and will be Zakatable at 2.5%.
It is important to note that any rental income from properties owned should be added to one’s cash balance for Zakat purposes.
Recap for property
The house in which you live is not subject to Zakat
If a property or other fixed asset has been purchased with the express intent to resell, then the entire value of the property / asset is subject to Zakat
If there is any other intention, then it is not subject to Zakat
For example, you purchase an additional property other than the residential house & the intention for purchasing it is just to invest cash in it. In this scenario, the second house is not to live in, so there is no zakat due on it because it is a long-term investment.
However, if you make an intention to sell your property, it will not be subject to Zakat. Upon the sale, any remaining proceeds on your annual Zakat day will be liable for Zakat.
Like property, Zakat is due based on the use of the fixed asset and your intention. For fixed assets such as land, Zakat is not due on the land if you have simply inherited or purchased it with no particular intention or as a store of wealth.
If it was bought for investment, then Zakat is due on the approximate sale price of the land every year, on the Zakat anniversary. This means that the land needs to be valued each year to see if it’s value has increased, depreciated or remains the same. It’s always important to check to ensure that you do not over – or underpay. You can delay the payment for each year for the time when the land is actually sold. In this case it will be due for each of the previous years based on the land value at the time.
Mortgage payments are not deducted from your Zakatable assets. Scholars give an allowance for up to one year’s worth of the non-interest portion of the payments to be deducted but this allowance should only be taken if one feels that not doing so significantly impacts one ability to make the repayments in a timely fashion . If it is an Islamic home purchase plan then these are not considered to be debt and therefore nothing is deductible.