Is it beneficial to buy a second home?

Suyash, my neighbor heard about his colleagues discussing about tax benefit on buying a second home. He could not understand the implications and approached me. I explained him as follows,
 There are advantages in investing in a second home and some of them are as follows:
  • The interest paid on the second home loan is tax deductible and there is no upper limit unlike the case of self occupied houses where there is a limit of Rs 1, 50,000/- on interest.
  • Second home can generate inflation beating rental income which will be very useful post retirement.
  • Also, it will be convenient to go for Reverse Mortgage on the second house. It will provide tax-free annuity for the remaining period in life.
There are certain disadvantages also:
  • If the house is vacant, now Income Tax Department levies tax on the notional rental income.
  • Wealth Tax is payable on the second house unlike self-occupied houses which are exempted from wealth tax.

Example:

The total income from house property will be considered as (a-(b+c)) as given in the example below.

Let out  Second home

a) Rental Income ( Annual Value)

Rs. 1,50,000

b) Standard Deduction @30%

Rs. 45,000

c) Interest paid on home loan

Rs. 1,40,000

d)  Loss under “Income  from House property” (a-(b+c))

-35000

              You can reduce this amount from your taxable income. In case an employer does not allow you to adjust loss, you can claim tax benefit while filing tax returns. Suyash got clarity on second – home taxation.

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