Buying a home is a big step in anyone’s financial journey. Whether you live in India or the United States, a home loan can help you buy or build your dream home and also gives you some tax benefits. Knowing about these Home Loan Tax Benefits in India vs USA can help you save money and plan your finances better.
In this article, we will look at and compare the tax deductions on home loan interest and principal in India vs USA, so you can make smart choices no matter where you live.
What Are Home Loan Benefits?
A home loan tax benefit helps you save money on your income tax when you take a home loan and start repaying it. The government gives you this benefit to make it easier to own a home and you can get tax deductions mainly on these three things:
- Interest paid on home loan: This is the amount you pay as interest to the bank. You can claim a part of it as a tax deduction.
- Principal repayment: This is the part of your loan amount that you actually repay. Some of this can also be claimed for tax benefits.
- Additional deductions: in some cases, you may be able to claim extra tax benefits, spending on certain conditions.
Both India and the USA allow these home loan-related deductions, but the rules, limits, and how much you can save are different in each country.
Home Loan Tax Benefits in India
Under the Income Tax Act, 1961, if you have taken a home loan in India, you can save a good amount on taxes. Here are the main benefits you can get.
1. Section 80C – Principal Repayment
- You can claim up to ₹1.5 lakh per year for the principal part of your home loan and this deduction is available only after the construction of the house is complete.
- This deduction is available only after the construction of the house is complete.
- This benefit is only valid if you don’t sell the property within 5 years.
- You can also include stamp duty and registration charges in this limit.
2. Section 24(b) – Interest on Home Loan
- If your home is self-occupied, you can claim up to ₹2 lakh per year on the interest paid.
- If the home is rented out, there is no upper limit for the interest deduction.
- You can adjust a loss from house property against other income, up to ₹2 lakh.
3. Section 80EE & 80EEA – First-Time Home Buyers
In this, special deductions are available only for first time home buyers.
Section 80EE
- Extra deduction of up to ₹50,000 per year on interest with conditions like loan amount should be ₹35 lakh or less and property value should be ₹50 lakh or less.
- Loan must be sanctioned between April 1,2016 and March 31, 2017.
- You must not own any other house at the time the loan is sanctioned.
Section 80 EEA
- Additional deduction of up to ₹1.5 lakh per year on interest with conditions like the stamp duty value of the property must be ₹45 lakh or less.
- Available for loans sanctioned between April 1,2019 and March 31,2022 and you should not own any residential property at the time of loan sanction.
4. Joint Home Loans
- If you took the home loan jointly, each co-borrower can claim tax benefits separately.
- This means double the savings on both Section 80C and Section 24(b).
- Make sure that both are co-applicants, co-owners of the loan and property respectively because both are actually repaying the loan.
Home Loan Tax Benefits in the USA
The U.S. government encourages people to own homes by offering several home loan tax benefits through the IRS. These benefits mostly apply when you break-down deductions on your tax return instead of taking the standard deduction.
1. Mortgage Interest Deduction
You can deduct the mortgage interest you pay on your home loan, up to:
- $75,000 in loan value for homes bought after Dec 15,2017
- $1 million if the loan was taken before that date.
You must use Schedule A and choose to break-down deduction. It is applied to both primary and secondary residence and helps you lower your taxable income.
2. Mortgage Insurance Deduction
- If you pay private mortgage insurance (PMI) or similar insurance like FHA or VA loan insurance, you may be able to deduct the premiums.
- Available for incomes up to a certain level usually phases out around $100,00–$109,000 for single filers.
- This deduction has been renewed year-by-year, so check IRS updates annually.
3. Property Tax Deduction
- You can deduct up to $10,000 in total for states and local taxes. This includes property taxes and state income tax or sales tax.
- It is good for homeowners in high-tax states and it also requires itemizing deduction.
4. Home Equity Loan Interest
- Interest on a home equity loan or line of credit (HELOC) can be deducted, but only if the money is used to buy, build, or improve the home that secures the loan.
- Remember, you can’t deduct it if you used the loan to pay off debt or cover general expenses.
5. First -Time Homebuyer Programs
These aren’t deductions, but they still offer financial help. First-time homebuyer programs might include:
- Tax credits like the old First-Time Homebuyer Credit, or newer state/local ones.
- Grants or down payment assistance.
- Tax-exempt bonds that lower interest rates on mortgages.
This program varies by state and local government. Some may offer help with closing costs or reduced interest rates.
Which Country Offers Better Tax Benefits?
You can’t decide which country offers better tax benefits, both have their pros and cons. It depends on a few things:
- Your income level
- Whether the property is self-occupied or rented
- The loan amount and how long it is for
- Your filing status and if you break-down deductions in the USA.
In India, the tax system is simpler and works well for middle class salaried people. Even with the old tax rules, it’s easy to claim deduction and lower your taxable income.
In the USA, tax benefits can be bigger in dollar terms, but only if you break-down deductions. After the 2017 Tax Cuts and Job Act, fewer people break-down because the standard deduction went up a lot.
Who Benefits More – First-Time Homebuyers in India or USA?
India offers very specific and targeted deductions for first-time home buyers under 80EE and 80EEA, making it easier for people entering the property market.
In the USA, although there is no specific federal deduction for first-time buyers, state-level programs and credits like the past First-Time Homebuyer Credit can make a significant difference.
If you’re a first-time buyer looking for ongoing income tax relief, India currently offers more consistent tax benefits through direct deduction.
Conclusion
Both India and the USA offer valuable home loan tax benefits, but the structure, accessibility, and extent of these benefits vary significantly. India’s tax system is more straightforward and inclusive for a wider population, particularly benefiting first-time buyers and salaried individuals.
The USA, on the other hand, provides larger potential deduction, but primarily for those who break-down their returns and have higher value mortgages.
Always consult a tax expert to manage these benefits to your individual situation and maximize your savings.
Know someone who needs home loan tax benefits in India and the USA? Share it with them! And drop your thoughts in the comment section. We’d love to hear from you and keep the conversation going!
FAQs
Can NRI claim home loan tax benefits in India?
Yes, Non-Resident Indians (NRIs) can claim deductions under Section 80C and 24(b), provided the income is taxable in India.
Are home improvement loans tax-deductible in the USA?
Yes, but only if the loan is secured by the home and used for qualified improvements.
Can both husband and wife claim tax benefits on a joint home loan in India?
Yes, if both are co-owners and co-borrowers, each can claim deductions separately on both interest and principal.