Are you considering acquiring real estate? You are going to take out a mortgage loan. Borrowing to acquire real estate is expensive in terms of interest, but you should not lose sight of the fact that the payment of these interests is tax-deductible. Therefore, even if in some cases the buyer can afford to buy real estate, it is often much more advantageous to take out a mortgage loan and deduct the interest from this loan from the property income that is included in your personal income tax return. Here’s an overview of this fundamental question.
Deduction of interest
Interest paid on any mortgage loan is 100% deductible from all property income included in your personal income tax return.
Property income is, for non-rented properties, the cadastral income (for land or the main residence of the borrower), or the cadastral income increased by 25% for other properties owned. For rented properties, it will be either the cadastral income or the actual rent received depending on the type of rental.
If the declared property income exceeds the interest, there will be a total deduction of the interest paid.
Additional interest deduction
However, if the income is lower than the interest paid, there is an additional interest deduction, but under certain limiting conditions:
- It only applies to the construction of your home, its acquisition in new condition, or its renovation (if the home is more than 15 years old). This reduction does not apply to buildings that do not constitute the borrower’s residence.
- In addition, the loan must have a term of more than 10 years.
Reduction on the repayment or reconstruction of the capital
There is also a tax reduction on the amounts paid by the borrower to amortize or reconstruct the borrowed capital.
A certain complexity
Each case must be analyzed individually to calculate the tax advantage and thus better determine the amount you could borrow under a mortgage loan.
