Investing in real estate has always been considered a great option to diversify and strengthen one’s financial portfolio. But besides acting as a new source of income, investment in real estate can also help you save taxes every year. To boost the real estate sector growth, the government allows several deductions under various sections while filing IT returns.
If you have a strong real estate portfolio, it is best to hire a proficient and reliable tax accountant who can offer you the best guidance based on your real estate portfolio. You can ask about the deduction under 80C and other sections, months before the IT filing month, so you can take the suggested actions before filing the IT return.
But if you don’t hold much real estate but are planning to do it to avail tax benefits, you should go through the below-discussed common ways that can help you save taxes via real estate investment.
Also read – The Complete Guide on Tax Preparation
Deduction under Section 24
This section grants you the exemption on the home loan interest you’ve taken to purchase the property. If you’re receiving rental income from your property and are paying home loan interests simultaneously, the interest amount can be deducted from your income while calculating the tax value.
To stay on the safer side, hire an expert tax preparer to help you with the calculations. Under section 24, you can only claim deductions on interest amount and net annual value. If the provision of this section makes you want to purchase a property on a home loan, you can use EMI calculator for home loan to get a rough estimate of tax figures.
Avail Depreciation Tax Benefit
One of the best and biggest tax reliefs to real estate investors is the depreciation tax benefit. If you own an income-making property, you can utilize its depreciation amount over the years to claim the deduction. Depreciation holds a special place in real estate, as it is the only aspect that helps in reducing tax liability, even though the property’s market value is experiencing value appreciation. Though you can prepare your IT return using online resources, taxes aren’t something you should play with. Look for a professional who has experience in this area.
Utilize Section 80C for Maximum Savings
Investors who have taken a loan to purchase real estate can claim a deduction on the repayment of the principal loan amount. Deduction on investment can be claimed against the income earned from the same property. However, the income and investment should be of the same year to be eligible for deduction. Deduction under section 80C doesn’t have any minimum cap, but the maximum deduction one can claim is Rs.1.5 lakh.
Also Read – how to find a reliable tax accountant
Check Out Your Capital Gain Taxes
Investors willing to sell their purchased properties will be liable to pay either short-term or long-term capital gain tax, depending on when the property is being sold. If you sell your real estate within two years of the purchase date, you’ll attract a higher tax rate on the sale amount.
But if you sell the property after two years of ownership, the tax rate drawn is lower compared to the short-term capital gain tax rate, which can significantly save much of your money. To claim these deductions, make sure you safely store and preserve the documents for tax purposes, as they can be asked for reconciliation by the tax authorities.
Serial real estate investors often reinvest the profit earned from sale proceeds and claim exemptions. But to claim this deduction, the profits should be reinvested in purchasing bonds like NHAI, REC, etc., or residential properties in India. The investment has to be made within a stipulated time frame, failing which you won’t be able to claim any further exemption.
Another point to keep in mind is storing the capital gain amount in a capital gain account of a notified public sector bank before the return filing date. You can open either a savings or term deposit account, depending on your convenience.
Real estate investors get to claim various expenses like utility charges, insurance, property tax, maintenance charges, and much more if the due process is followed. While you can use an EMI calculator for home loan to get rough figure estimates, don’t rely on any tool for calculating IT returns, and hire a tax attorney.