A home is a cherished possession used for more than just housing. Additionally, if you have the money, you should buy a second asset! There still are a lot of decisions to be made, though, before buying a home. You have already been making your current residence’s EMI payments. Will applying for a second home loan be as straightforward for you? Consider getting a second home loan to lessen your tax burden and afford a more luxurious living place. Use a home loan interest rate calculator to plan your finances and know the EMIs of the loan. In this article, we will be discussing some of the second home loan tax benefit.
Second Home Loan Tax Benefits
Numerous home loan tax benefits are available to people who own two residences. However, you will not be qualified for this benefit if you have already repaid your mortgage in full. Let’s discuss some of the second home loan tax benefits.
- Self-Occupying the Second Home: According to the Income Tax Act requirements, if, for your use, you own more than one residential property, one of the two homes of your choosing will be regarded as self-occupied, and its yearly value will be zero. The other house will be regarded as a let-out and a speculative rent in accordance with the requirements, and it will be taxed as “Income from House Property.”
- Looking at the Tax Effects of Vacate Property: If you own two properties, you can opt to treat one of them as “Self Occupied Properties” (SOP). The remaining home(s) shall be categorised under the Act as “Deemed Let-Out Property” (DLOP). One of your properties is a rental property if it is a DLOP. As a result, the taxable income will be adjusted with a fictional rental value. A fixed reimbursement of 30% is available for maintenance and general upkeep.
- Using the Second House as a Retirement/Vacation Retreat: Since there is only one property for which the self-occupied asset advantage is available, the assessed yearly rent will be taken into account for determining the taxable value.
- Renting or leasing out a second home: If you purchase a second property to lease or rent out, your actual rent will be liable to taxation.
- Municipal Tax Deduction: In general, municipal taxes can be deducted in the fiscal year they are paid. It holds regardless of whether the taxes are related to the current or earlier fiscal years.
- Interest deductions: These are allowed, regardless of whether your second property is formally rented out or has been rented in considerable parts. In contrast, the maximum interest rate on a home loan for a self-occupied property is restricted at INR 1.5 lacs per year (INR 2 lacs starting with AY 2015–2016), subject to some conditions.
Tips for Veteran Home Buyers Seeking a Second Home Loan:
In this competitive market, are you second-guessing your decision to submit an offer on your vacation home? It will most likely increase in value and serve as an excellent retirement residence. However, being haughty about your home-buying experience is not a smart idea. The real estate market is continuously shifting, and adjustments to pricing and trends are almost always abrupt and dramatic.
You should keep the following advice in mind before buying a second home:
- The adage “Location, Location, Location” also holds true in this case.
- Do your research on the area and be sure why you’re buying—whether for tax advantages, an investment, or a home for your later years.
- Examine the property’s actual rental feasibility if you plan to rent or lease it. Verify if the facility also meets the tenants’ requirements, and for further information, speak with the neighbourhood or resident association.
- Request a cost estimate for every possible expense. Are you still making payments on your initial mortgage? Then, confirm that you qualify for the funding you’ll need. For second-time purchasers, the interest rate regulations can change.
- Use tools like a home loan interest rate calculator to plan your finances.
The Procedure for Applying for a Tax Credit is as follows:
- Verify your name is on the residential property’s registration. Make sure you are identified as a co-owner of the home if you have a shared mortgage.
- Determine the entire amount of your tax deductions.
- Give your employer a copy of your home loan interest certificate to get the TDS adjusted. If you cannot finish this stage, you should instead file your IT returns.