When entering into a mortgage or loan for an owner-occupied home, the tax arrangements for owner-occupied home debt plays an important role. The tax arrangements for owner-occupied homes have been reviewed in recent years. This section describes the various laws and relevant regulations.
The interest paid on new mortgages for an owner-occupied home is deductible only for a loan that is repaid in full for a maximum of 360 months (30 years) and at least on an annuity basis. This condition applies only to debts incurred after 31 December 2012. If a debt entered into before 1 January 2013 is enlarged after that date, this increase will be subject to the new conditions. Deduction of interest is possible only on debts that fall under the term 'owner-occupied home debt'.
There are three types of debt that can qualify as owner-occupied home debt:
- A debt to acquire an owner-occupied home.
- A debt for improvement or maintenance of the owner-occupied home or to buy off rights of leasehold, superficies or perpetual fixed-rent hereditary lease.
- A debt to pay the cost of the above debts.
Owner-occupied home debts that already existed on 31 December 2012 are subject to transitional law. The conditions for mortgage interest deduction therefore remain unchanged for these loans. If homeowners repay the existing loan after 31 December 2012, the owner-occupied home debt will be reduced by the repayment.
If homeowners repay the existing loan in full at the time of the sale of the home – and take out a new mortgage debt in the following calendar year at the latest – the new loan may again be subject to transitional law.
Rate adjustment of mortgage relief
The mortgage interest deduction will be gradually reduced to the base tax rate of approximately 37% in 2023. In 2020, the maximum tax rate is 46%.
A part of the cost of an owner-occupied home is tax deductible. As a result, you pay tax on a lower amount. This includes:
- Interest on owner-occupied home debt;
- Non-recurring deductible expenses, such as costs of entering into owner-occupied home debt;
- Periodic payments on the basis of ground lease, superficies or perpetual fixed-rent hereditary lease.
The tax benefit depends on the amount of interest and on the rate of income tax to be paid. This in turn depends on the level of taxable income.