Buying a New Home Before Selling Your Current House? Read This First
Are you excited about moving to a new place? Leaving your current home might make you a little teary-eyed, but the new house will bring with it joy, happiness, and the opportunity of creating and cherishing fresh memories. If you are selling your current house to buy a new one, you need to keep certain things in mind before going ahead with it.
Things to consider when buying a new house
Read on to know whether it is worth buying a new house before you sell your current one.
- Claiming tax benefits
If you sell your current house, the difference between the sale value and purchase cost (indexed) of your current house will become taxable. However, there is a way out. If you opt for a home loan for purchasing your new house, you get to claim it as a deduction and also an exemption from tax under 4 different sections of the Income Tax Act.
- Section 24(b):
You can claim a deduction on interest paid for a home loan under this section. The maximum amount of deduction varies from case to case.
- Section 80C:
You can claim the principal amount repaid for a home loan as a deduction under this section. The maximum amount of deduction available is up to Rs. 1,50,000.
- Section 54:
Under this section, the capital gains arising from the sale of your current house are exempted if the sale proceeds are used to purchase a new house. The exemption amount depends on the total capital gain and the cost of the new house.
- Section 80 EEA:
You can claim the interest paid on the loan as a deduction under this section. This deduction can be claimed over and above the deductions under section 24(b), mentioned above. However, the deduction can be claimed only if the loan has been sanctioned before 31st March 2022 (w.e.f. 01-04-2022). Also, you should not be owning any residential property on the date of sanction of the loan. Therefore, the wiser thing to do is first sell your current house if it is the only residential property that you own. After that, you may apply for a loan to avail of the benefits under this section. The maximum amount of deduction allowed is Rs. 1,50,000.
- Sell first, buy later:
Financial planning is another reason to sell your first house before buying the new one. Once you sell your current house, you can calculate the amount of down payment and the amount of home loan you need, based on the proceeds from the sale.
- Relief from multiple debts:
If you buy a new home before selling the current one, because the current house is mortgaged or has a home loan, then you can end up repaying two EMIs. Also, having an outstanding debt will lower the amount of loan that you can avail. If your income is not enough to pay two EMIs, this may also lead to the rejection of your loan application.
In a nutshell:
Selling your current home before buying a new one has many advantages. However, you might have to occupy a rental space if you have not finalised the purchase of your second house before selling the first one. You can also use financial tools like the home loan EMI calculators to find out the EMIs you may have to pay for purchasing the new home. Simply enter the loan amount, tenure, and home loan interest rate to calculate your EMIs.
Now you can get ready to move to your dream house and make fresh memories while still cherishing the old ones.