ITR Filing 2026: Own a second home? Here's how to report it correctly and avoid costly tax mistakes

With the income tax return (ITR) filing deadline approaching, taxpayers who own a second home should pay close attention to how the property is reported in their returns. Incorrect disclosure of additional properties remains one of the most common filing mistakes and can result in incorrect tax computation, notices from the Income Tax Department or unnecessary scrutiny.

The tax treatment of a second home depends on whether it is self-occupied, rented out or lying vacant. Each category has different tax implications, deductions and reporting requirements, making it important for taxpayers to understand the applicable rules before filing their returns.

Self-occupied or deemed let-out?

Under the Income Tax Act, 1961, taxpayers can treat up to two residential properties as self-occupied. In such cases, the annual value of these properties is considered nil, meaning no notional rental income is added to taxable income.

However, if an individual owns more than two residential properties, any additional vacant house is treated as a deemed let-out property. Even if the property has not been rented, tax may be payable on its expected rental income. Tax professionals advise taxpayers to classify additional properties correctly, as reporting a deemed let-out property as self-occupied is a common mistake that can result in incorrect income disclosure.

What deductions can you claim?

Owners of rented or deemed let-out properties can claim a 30% standard deduction on rental income towards maintenance expenses. They may also claim deductions on home loan interest against rental income, subject to the provisions of the Income Tax Act.

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The tax benefits available also depend on the tax regime chosen. Under the new tax regime, interest deduction on self-occupied houses is not available, while losses under the head “Income from House Property” cannot be adjusted against salary or other income. Taxpayers should compare the old and new tax regimes before filing their returns to determine which option offers greater tax efficiency.

Buyers look beyond tax benefits

While tax planning continues to be an important consideration, second-home buyers are increasingly evaluating properties based on their long-term investment potential rather than immediate tax savings.

Industry experts say premium second homes are now viewed as long-term or legacy assets, with buyers prioritising factors such as location, connectivity, infrastructure, limited inventory, architectural quality, developer credibility, legal transparency, rental potential and future appreciation. Recent changes in capital gains taxation have also encouraged investors to focus on long-term wealth preservation instead of short-term tax advantages.

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If a second home is sold after being held for more than 24 months, the gains are treated as long-term capital gains. Taxpayers may claim exemptions under Sections 54 and 54EC, subject to meeting the prescribed conditions.

New communication requirement

Apart from correctly reporting house property details, taxpayers should also ensure that their personal information is updated while filing returns.

Gaurav Singh Parmar, Associate Director, Fincorpit Consulting, said the introduction of a mandatory secondary communication address reflects the Income Tax Department’s broader effort to improve taxpayer records and ensure smoother communication.

“As tax administration becomes increasingly digital, people often move cities, change residences or update their correspondence details. Relying on just one address can delay the receipt of notices and other official communications. A secondary communication address provides an additional point of contact, reducing the chances of missing important correspondence and avoiding unnecessary litigation arising from improper service of notices,” Parmar said.

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He noted that while the Income-tax Act does not specifically define a secondary communication address, taxpayers should provide another genuine and accessible address where communications can be reliably received. If they have only one address, they should follow the instructions in the ITR utility and, where permitted, use the same address instead of leaving the field blank.

Before filing an ITR, second-home owners should also keep documents such as the registered sale deed, home loan interest certificate, municipal tax payment receipts, rental agreements and co-ownership records ready, as the Income Tax Department increasingly uses data analytics to verify information reported in tax returns.

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