Tax benefits for property investments in Bangalore
CategoriesHome Buying Guide

Investing in property still remains the most lucrative mode of investing one’s hard-earned money to maximize returns. It is the best mode to create extra residual income, financial security and diversify your investment portfolio. The construction activity by the builders and developers in Bangalore is going on at a frenetic pace with many opportunities to invest in the near- and medium-term periods. With an average rental return of 5 to 7%, Bangalore is a major real estate investment destination. There are many tax incentives that investors can enjoy on all property types including flats, apartments, villas, and plots. One can save on the taxes paid towards the income earned from the property and maximize their returns.


Let us look at the tax benefits one can avail of on property investments in Bangalore.


1. Depreciation


The value of a property in various projects in Bangalore too depreciates over time when compared to newly constructed properties. A depreciation allowance is allowed on properties that are used for income-generating purposes like rentals. The real estate investor can enjoy significant tax benefits by annually deducting depreciation allowance for the wear and tear of the property.


2. Deductions


A property investor can deduct the necessary expenses for maintaining and managing the property which includes write-offs like utility, maintenance, advertising, property tax, and repairs. This is a very advantageous benefit of investing in property and can result in savings for the investor. Also, if there are any expenses incurred by hiring property management services to carry out the day-to-day management of the property like tenant screening, rent collection, and advertising. Expenses incurred for repairs, maintenance, and improvements on the property used as investments are tax deductible.


3. Mortgage Interest Deduction


One of the smart investment moves is to invest in a property using a loan and then use the rental income to pay for the mortgage. The interest paid on the mortgage loans is deductible. High-value investments like villas in Bangalore usually need to be financed by loans and mortgages.


4. Deductions on Passive Income


The recently passed Tax Cuts and Jobs Act allows 20% of taxable income gained from profitable rental businesses for pass-through deductions. Pass-through deductions apply to passive income earned by not physically working for it. This benefit is available to only those businesses which are profitable.


5. Capital Gains


When a property is sold for a sum greater than it was purchased for, the profit amount earned is taxable as short-term or long-term capital gain. The capital gains tax amount is lower than income tax. Long-term capital gains apply to properties that have been held for more than a year. The tax on these properties is lower than that on short-term capital gains which is applicable in properties that have been held for less than a year.


The tax write-offs that real estate investments offer can be highly profitable. The trick lies in knowing how and when to take advantage of it to increase the gains on your investments.

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