Question # 437: Help with Zakat calculation – I have a friend who buys damaged houses, renovate them and then sell them. None of these houses are under his name for a period exceeding six months, meaning he disposes them in less than six months after renovation. I sometime invest 10-15% into this business without legally getting the house transferred in my name, meaning till the house is renovated and sold it is always in my friend’s name. Can you please help with the manner of calculating zakat for both of us?
bismi-llahi r-raḥmani r-raḥīm,
Assalamu ‘laikum warahmatullahi wabarakatuh,
All praise and thanks are due to Allah (سبحانه و تعالى), and peace and blessings be upon His Messenger (صلى الله عليه و سلم).
First of all, we implore Allah (سبحانه و تعالى) to help us serve His cause and render our work for His sake.
Shorter Answer: If someone is involved in trading of houses i.e., buying and selling, with the intention of making profit, he should calculate zakah in the following manner: He should start to calculate the lunar year from the date he owns the basic minimum (nisaab) [Note: The starting of lunar year for zakah on tradable items is based on the date on which the original money with which they were purchased reached nisaab and not from the time of purchasing them.] Then, he should evaluate the value of merchandise (i.e., houses) he possesses at the end of the year at the market price and add to it whatever sum he has of liquid money. He should subtract from this total any debts he has to pay (if they are about to be paid), then calculate the zakah on the rest of the money as quarter-tenth (2.5%). It is not necessary that a year should pass on each and every part of the wealth or every deal of the trade.
As for your share, you should also start to calculate the lunar year from the date you owned the basic minimum (nisaab). Then, you should calculate your 10-15% investment share in the above calculated value as at the year-end and add to it whatever sum you have of liquid money, then calculate the zakah at 2.5%.
Long Answer: Dr. Salah Al-Sawy, the Secretary General for the Assembly of Muslim Jurists in America replied in response to two similar questions: “If you wanted to make a turnover on the apartment itself by buying and selling, with the intent to make a profit, you must pay zakah on the value of the apartment itself—it would then have the same status as any merchandise prepared for trade, whenever a year has passed from the date you initially designated it for investment… A trader starts to calculate the lunar year from the date he owns the basic minimum (nisaab). He should evaluate the merchandise he has at the end of the year at the current price and add to it whatever sum he has of liquid money and any debts expected to be liquidated (a debt is expected to be liquidated if the debtor is solvent and is willing to pay the debt). He should subtract from this total any debts he has to pay, then calculate the zakah on the rest of the money as quarter-tenth (2.5%). It is not necessary that a year should pass on each and every part of the wealth or every deal of the trade. The due time of zakah on the money gained during the year is that of the origin, when the origin reaches nisaab.”
Ibn Qudaamah (may Allah have mercy on him) said in al-Mughni: “Whoever possesses trade goods and one year has passed since he acquired (the money with which he brought them), and they reach the nisaab (minimum threshold), should work out their value at the end of the zakah year, and whatever the value is, he should pay zakah on it at a rate of one quarter of ten per cent (2.5%).”
The scholars of the Standing Committee for Issuing Fatwas said: “The proper way is to work out the value of what he has of trade goods upon the completion of the zakah year, based on the value of those goods at the time when zakah became due, regardless of the price for which the goods were bought.” (Fataawa al-Lajnah ad-Daa’imah)
The Standing Committee was asked: In the case of land that has been bought for trade, how should the zakah be worked out? Is it based on the purchase price or on the market value at the time when one year has passed and the zakah is due?
They replied: “Land which has been bought to sell comes under the heading of trade goods, and the general principle in Islamic shari’ah is that the value of trade goods should be worked out after one year has passed, according to their market value, regardless of the purchase price, and regardless of whether the market price at the time when zakah becomes due is more or less. The zakah should be paid on their value, and the rate of zakah is one-quarter of one-tenth. In the case of land that is worth one thousand riyals, for example, the zakah is twenty-five riyals, and so on.” (Fataawa al-Lajnah al-Daa’imah)
Note: the zakah year for trade goods does not begin from the date the trade goods were bought; rather it is based on the zakah year for the cash with which the trade goods were bought.
In the case of partners in ownership of real estate, each partner must pay his share of zakah, if it reaches the minimum threshold (nisaab), according to the majority of scholars.
Shaykh Bakr Abu Zayd said: In order for zakah to be obligatory upon each partner in ownership of real estate, the value of his share of the property must reach the minimum threshold by itself or when added to other wealth of his that is subject to zakah, such as cash or trade goods. (Fatwa Jaami‘ah fi Zakaat al-‘Aqaar) …the view of the Shafi‘is is that what matters is the total value of the property, not the minimum threshold of each individual. So, if the value of the real estate reaches the minimum threshold, each of them must give zakah, even if his own share does not reach that threshold. (This was the view adopted by the Islamic Fiqh Council, and Shaykh Ibn ‘Uthaymeen was also inclined towards this view)
(The above answer – shorter version has been reviewed by Dr. Main Khalid Al-Qudah, Member of the Fatwa Committee of Assembly of Muslim Jurists in America)
(Unless stated otherwise, the above reply is based on various answers provided by Shaykh Muhammad Saalih al-Munajjid on similar topics)
Allahu A’lam (Allah (سبحانه و تعالى) knows best) and all Perfections belong to Allah, and all mistakes belong to me alone. May Allah (سبحانه و تعالى) forgive me, Ameen.