Calculating zakat for a plot of land reserved for investment
I bought a plot of land with the intention of reselling it for profit and sold it five years after its purchase. Is zakat due on the profit I made, on each year it was in my possession or on the last year only? Is the ruling the same for a property purchased with the intention of keeping it as a private residence but which I sold due to a change in my circumstances? In the latter case, is zakat calculated on the profit made in the last year?
Are any debts to be deducted from the profit before calculating zakat?
Zakat is one of the pillars of Islam. It is due upon a Muslim whose wealth has reached nisab [minimum amount upon which zakat is due] which is the equivalent of 85 grams of 21 carat gold; must be in surplus of the needs of the zakat payer and his dependents and its amount is one quarter of a tenth (i.e. 2.5%) of its worth. Any debts are to be deducted before calculating zakat which is only due upon the remaining sum.
Based on the above and in reference to the question, since the plot of land was purchased with the purpose of investment, zakat is paid upon the sale price i.e. on the last year of its possession without waiting for a lunar year to pass on its possession and the zakat amount is 2.5%. This is the opinion of Imam Malik ibn Anas and the opinion chosen for fatwa on this issue.
No zakat is due upon a property purchased for private residence. If circumstances change and the property is sold, zakat is due only on the profit if it reaches nisab, after one lunar year passes and after deducting any debts.
Allah Almighty knows best.