2nd Home Loan

POSTED BY Arudra Kumar ON May 14, 2012 5:13 pm COMMENTS (7)

Hi folks,

One of my friends is planning to buy a house very soon. This would be his second property. He has a running home loan on his first property. He wants to buy the new property jointly with his wife. His wife does not have any other home loan on her name (For her this would be the first property). What all would be the Tax benefits/ tax implications he can claim/ liable, for the 2nd property. Can he choose to show any property as self-occupied and the other as let-out. Please explain all the possible scenarios, so that, my friend can take a informed decision.

Thanks in advance.

Regards,
Arudra.

7 replies on this article “2nd Home Loan”

  1. Dear Arudra, please clarify some points to get a better answer.

    1st property is self occupied or on rent?

    What status ‘ll be for 2nd property, self occupied or rent?

    What is the actual interest outgo in 1st property?

    What ‘ll be the yly interest out go for 2nd property?

    Thanks

    Ashal

    1. Arudra Kumar says:

      Thanks a lot for the prompt replies, justgrowmymoney and Ashal.

      @ Ashal, Please see the asnwers for your questions below:

      1st property is self occupied or on rent?
      – As of now the 1st property is self occupied.

      What status ‘ll be for 2nd property, self occupied or rent?
      – They want to shift into the new property soon and let out the first property.

      What is the actual interest outgo in 1st property?
      – Approx Rs.85000/- per Annum

      What ‘ll be the yly interest out go for 2nd property?
      – Approx Rs.275000/- per Annum

      Regards,
      Arudra.

      1. Dear Arudra, what ‘ll be the rent earning for the 1st house as & when it’ll be on rent?

        What’s the property tax to be paid for 1st house to local municipal corporation?

        Thanks

        Ashal

        1. Arudra Kumar says:

          Dear Ashal,

          The rent for the 1st house would be ~7k to 8k per month and Property Tax would be ~2k per month.

          Regards,
          Arudra.

          1. Arudra Kumar says:

            Please read the Property Tax as~2k per annum.

            Regards,
            Arudra.

          2. Dear Arudra, Here is the calculation once the 2nd property is self occupied & 1st property is on rent. Below is the tax benefit calculation for 1st property.

            A. yly rental value = 8000*12 = 96000
            B. Property Tax = 2000
            C. Net rental value = A – B = 94000
            D. 30% standard deduction on C above = 28200
            E. Interest paid on home loan = 85000
            F. Net income from house property = C – (D+E) = -19200

            G. Interest paid on home loan in 2nd property which is self occupied = 275000/2 = 137500

            H. Income from house property = -19200 + (-137500) = -156700

            The above is for the husband.

            For wife, only 137500 Rs. are available as interest benefit on home loan of 2nd property.

            thanks

            Ashal

  2. Your friend can show any property as self occupied and let out [Assuming he does not really reside in the property he calls let out].

    For Self occupied property the total interest for IT deduction purposes is only 150,000
    For a let out property the entire interest is tax deductible + You also must show real rental income on this property/show a notional rental income even if not rented out.

    Thus if the new home is going to cost a lot it makes a lot of sense to keep the first home loan open so you can claim whatever is available for self occupied property there and then claim the entire interest outgo on the let out property. This advantage slows down after a few years as the rental income on let out property rises and the interest component falls.

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