Are you planning to take a home loan? If yes, then you should know about the various tax benefits that are available on home loans. A home loan not only helps you in buying your dream house but also provides certain tax benefits. In this blog post, we will discuss the various tax benefits that are available on home loans. We will also see how these benefits can help you in saving money on your taxes.
Tax Benefits Of home loan
There are several tax benefits of taking out a home loan. The most obvious benefit is the deduction you can take for the interest you pay on your loan. This can lead to a significant reduction in your overall tax bill.
In addition, you may also be able to deduct the points you paid to obtain your loan. Points are interest paid in advance and are typically equal to 1% of the loan amount. This deduction can be taken in the year you purchase your home or in future years as long as you continue to itemize your deductions.
Another potential tax benefit of a home loan is the ability to use proceeds from a cash-out refinance to make improvements to your home. The cost of these improvements can then be deducted from your income taxes as well.
Finally, if you sell your home at a profit, you may be able to exclude up to $250,000 (or $500,000 for married couples filing jointly) of that profit from capital gains taxes. This exclusion can provide significant tax savings if you have owned and lived in your home for at least two years prior to selling it.
Eligibility for tax benefits on a home loan
To be eligible for tax benefits on a home loan, the loan must have been used to purchase, construct, or improve the taxpayer’s primary residence. The interest paid on the loan is typically tax-deductible, and the loan itself may also qualify for certain other tax benefits.
To deduct the interest paid on a home loan, the taxpayer must itemize their deductions on their income tax return. The deduction is limited to the interest paid on the first $1 million of mortgage debt, and it cannot be more than the taxpayer’s taxable income for the year.
There are other restrictions that may apply to Deductible Home Interest, so taxpayers should consult a tax professional or refer to IRS Publication 936: Home Mortgage Interest Deduction before claiming this deduction.
In addition to the interest deduction, taxpayers may also be able to claim a tax credit for certain energy-efficient home improvements. This credit is available for improvements made in 2020 and 2021, and it can be worth up to $500. To claim this credit, taxpayers must file Form 5695 with their income tax return.
For more information on these and other tax benefits available for homeowners, please refer to IRS Publication 530: Tax Information for Homeowners.
How to avail tax benefits on a home loan
Assuming that you are a salaried individual, to avail tax benefits on your home loan, you would first need to ensure that the property is registered in your name. You would also need to have the loan agreement and registration papers in place. The next step would be to submit Form 16 (which is a statement of your annual income) and Form 26AS (which is a statement of taxes deducted at source) to your bank or financial institution.
You can claim a deduction for the interest paid on your home loan under Section 80C of the Income Tax Act. The maximum amount that can be claimed under this section is Rs 1,50,000. You can also claim a deduction for the principal amount repaid under Section 80C. The maximum amount that can be claimed under this section is Rs 1,50,000.
To avail tax benefits on a home loan, it is important that you understand the conditions and restrictions imposed by the Income Tax Act. These include:
-The property must be self-occupied. If it is rented out, you can only claim a deduction for the interest paid on the loan.
-The deduction for interest paid on the loan can only be claimed from the year in which construction of the house is completed or from the year in which possession of the house is taken, whichever is later.
-The deduction for principal repayment can only be claimed from the year in which possession of the house is taken.
