Most city folks would love to have a holiday home to escape from the noise and pollution of a metropolis. Unfortunately, this kind of house doesn’t come cheap and most times, only the wealthy can afford it. This is mainly because of existing monetary policies, specific home loan criteria, and rising interest rates.
However, the biggest advantage of owning a holiday home is that you needn’t worry about finding a hotel or resort to stay in during your vacation. You have a comfortable place of your own, where you and your family can relax and unwind.
Here’s what you must consider before you buy a holiday home.
Should you Invest in it?
A large number of people spend their money on a property they’ll hardly ever use. They initially buy it because the property was cheap at that time. Make sure that if you buy a home, you actually spend enough time in it and not leave it deserted for a long period of time.
Also, you should get a holiday home if you have surplus money and there are no legal settlements to be made. But if you don’t already own a house and you’re planning to make the holiday home your first, then this is a bad idea. Also, if your family is expanding, then it’s better to purchase a second house and not a vacation home.
Where Should the House be Located?
When you’re looking for a holiday home make sure it’s not on the outskirts of the city. Why? Because you might be in need of important facilities like hospitals and banks even when you’re on holiday. Also, make sure that you check up on the property regularly.
Additionally, remember that the location influences the price of a property, so if it’s close to the beach or a popular tourist spot, the value of your holiday home will increase.
What about Taxes?
Don’t think that owning a holiday home doesn’t come with tax implications. According to the ownership ratio rule mentioned in the Income Tax Act of 1961, if you have rented out your second property, then any income received from it has to be split among the owners. If the joint owner happens to avail of a loan for renovating or refurbishing the vacation house, then the interest charges for the EMI on a home loan are tax-deductible.
When you decide to sell this property within three years of buying it, then the sales proceeds will be considered short-term capital gains and taxed accordingly. If you sell this second home after three years of purchase, then the capital gains from the sale are taxable as long-term gains, at a rate of 20%.
Now that you know what to expect when you purchase a holiday home, ensure that you give it a lot of thought and choose a property wisely.