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Buying a holiday home? Keep these points in mind

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It is a fact that most of us would love to own a house outside the city, far away from the bumper-to-bumper traffic and the noise pollution. But such properties are best suited for those who have deep pockets, for whom the rising interest rates or monetary policies do not make much of a difference. But this housing segment is fast catching up.

Should you go for it?
If you have a surplus in investments and do not have any legal settlements, then this kind of investment will, hopefully, work fine for you. But if you do not have your own house and are planning to first go for a holiday home then it is a bad idea. If in case you are looking for a house due to your growing family, go for a second house and not a holiday home.

Selecting the right location
Also, when you are trying to locate your dream holiday home, make sure that it is not completely on the outskirts of the city, keeping you away from the basic facilities like hospitals, schools, and even your workplace. See to it that the distance is not far from your home, in order to provide for constant checks on your new property. Ensure that you have the facilities to various recreational and sporting activities as well. Choose the location that has potential for growth in future, which is possible by analyzing if there any infrastructural developments planned by the government in the near future.

As a source of income
Your holiday home will be a good investment if you have bought it in a location where greater appreciation is likely. You are more likely to earn income on your holiday home if it's in a location that is preferred by all. That's the best way to avoid your holiday home from being vacant for a long period of time, and the income can be used to finance the maintenance costs.

Tax policy
Just because it is a holiday home, do not expect to get a vacation off your tax payments. If you have not rented out your second property, i.e., the holiday home, then the income received from such a property will be in the hands of the joint owner, according to the ownership ratio under the Income Tax Act, 1961. Also, if the joint owners take a loan for repair or construction of such a holiday home then the interest for the year on the home loan is a part of tax deductions. If you are selling your holiday home within three years of purchase, any capital gains (excess of sale price on the cost price) arising from such a sale will be taxable as short-term capital gains as per individual slab rates. If you sell your holiday home after three years of purchase then the capital gains form such a transaction will be taxable as a long-term capital gain at the rate of 20 per cent.

The downside
While it does sound exciting to have a home away from home, it's not really a bed of roses. It is not easy to maintain a holiday home and even more difficult to sell it, mainly because holiday homes is not a property set that is required by all. It is aspired only by a few people who have excess of investment options. And moreover selling such homes would lead to maximizing the time required to dispose off such property since the demand is not the same as that of renting houses in the cities.

BankBazaar.com is an online loan marketplace.

Disclaimer: All information in this article has been provided by BankBazaar.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

Story first published on: January 23, 2013 12:32 (IST)

Tags: holiday home, investment, capital gains tax

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