Is there anything to think about in terms of taxes while investing in real estate?
Real estate investing can yield large profits, but increased income does not automatically imply higher taxes. While it is uncommon to totally eliminate taxes, the tax advantages of real estate investing can help you lower your tax burden. As a result, you can rent out flats or sell real estate assets while keeping the majority of your revenues. Tax write-offs, pass-through deductions, incentive programs, and other tax benefits are available to real estate investors.
Home Loan Tax Breaks:
You can save money on real estate taxes if you invest in real estate with a loan. The following are some deductions you can make on a home loan:
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Deduction for Interest Paid - If a home loan is used to acquire or build a home, the assessee may claim a tax deduction. The interest on home loan EMIs can be deducted from total income up to a maximum of Rs.2 lakhs.
However, there is no cap on the amount of interest that can be deducted on rented property.
Principal Repayment Deduction:
The principal paid on the house loan EMI is deductible from total income up to a maximum of Rs.1.5 lakhs. However, the house should not be sold within 5 years of the purchase date.
Stamp Duty Abatement:
In addition to claiming a deduction for principal repayment, you can also claim stamp duty and registration charges under section 80C up to Rs.1.5 lakhs. However, these can only be claimed in the year in which the expense was incurred.
Additional Savings:
Section 80E allows home buyers to claim an extra deduction of Rs.50,000. To qualify for this deduction, however, the loan amount must be less than Rs.35 lakhs, the property value must be less than Rs.50 lakhs, and the applicant must be a first-time house buyer.
Additional Deduction under Section 80EEA - Section 80EEA allows homebuyers to deduct up to Rs.1.5 lakhs. To claim this deduction, the stamp value of the house must exceed Rs.45 lakhs, the individual must be a first-time purchaser, and they cannot claim the 80EE deduction.
Deduction for Joint Mortgage:
If you take out a home loan jointly, each co-owner can claim a deduction of up to Rs.1.5 lakhs under section 80C for principle repayment and up to Rs.2 lakhs under section 24B for interest on the loan.
Typical Deduction:
In India, the standard deduction is a tax break on rental income. When you buy a home, it is understood that it would require repairs and maintenance. Even if there are no actual expenses, you can still deduct 30% of rental income.
Depreciation:
Depreciation can result in significant tax savings for homeowners. Real estate properties are also subject to wear and tear, necessitating investments in repairs and maintenance. Along with depreciation, the amount invested by the homeowner in repairs and modifications can be claimed as a deduction.
In a country where home ownership is highly valued, taking advantage of these tax breaks can be a prudent and strategic move for investors, ultimately making real estate one of the most appealing investment possibilities in India. However, not everyone is aware of the advantages of real estate investing. Seeking expert assistance is the best approach to save taxes on real estate investments.
