With purchases that go beyond the usual merit, many come up against financial limits. The solution: a loan. If the repayment is then pay less the actual rates than the interest to book.
Under certain conditions, however, you can specify these in the tax return, so that the taxable income is reduced accordingly. Regardless of the type of loan involved, the basic requirement is always an invoice based on purchase on installments.
Real estate loan tax deductible
Buying a property is an investment that can usually only be financed with a loan. During the term considerable interest rates are incurred.
These can be indicated under certain circumstances with the tax office and thus contribute to a reduction of the tax burden.
If the borrowing is made with the aim of generating taxable income, the interest from the tax is deductible as income-related expenses from rental and lease income. It is irrelevant whether the acquisition of an object or only the land is done on the foreseeable future, a rental property to be built.
In addition to the financing for the purchase of a property, this also includes the costs of repairs if they serve to secure the rental income.
When it comes to land purchase, however, if you buy land and buildings separately, you can save properly. The real estate transfer tax always accrues for the entire value, ie for a property including a building, the real estate value is included. If you buy the land separately and build later, the tax burden is lower.
If there is a loss due to interest and depreciation, the remainder will be offset against other income. For example, costs for the fitted kitchen over a period of ten years are to be written off, whereby the kitchen is treated as a single asset and not its individual parts are taken into account. Thus, the depreciation of an electrical appliance under 410 euros over 10 years must be written off.
If additional costs are included as income in the tax return, these must be stated as income-related expenses. Administrative costs, however, are not transferable to the tenant, but can also be claimed as income-related expenses.
When buying a two-family house, which is half used by itself, the other is rented (mixed use), for example, only the portion of the loan interest is deductible, which accrues for the rented half. Since a separate loan amount is required in the tax return, it is best to borrow two directly.
Better yet, set up your own account for the rental property to clearly separate the finances. Because only if the loan rate is clearly assigned, there is no danger that the tax office does not recognize this. Incidentally, the same applies to craft invoices.
Correspondingly, real estate loans that arise in the case of own use of an apartment are not taken into account. Exception: The acquisition of a second home occurs because the first home is too far from the place of work.
Then, additional costs, second home tax and depreciation of acquisition costs, renovations, brokerage commissions and relocation costs can also be included in the framework of the double budget management.
To deduct credit as a student for tax purposes
As a student, you can not always finance yourself through your parents or a part-time job. Accordingly, it requires a debt financing, which ensures the livelihood in the period of study.
Essentially, there are two options: a study or educational loan or the classic Federal financial aid. Both variants differ in their relevance to the tax return.
Federal financial aid – interest-free loan from the state
The Federal financial aid ensures the livelihood of many students. Half as a grant, half as a loan, it replaces at least part of the income and is used to finance livelihoods. The loan is due five years after the standard period of study – and can not be claimed for tax purposes.
In 2008, the Federal Finance Court decided that only credits for loans taken for educational purposes could be taxed. However, since the Federal financial aid is interest-free anyway, there is no relevance in the tax return.
Educational and student loans
The situation is different with a classical education or study loan. Such a course is less convenient for students than the Federal financial aid, as there is no grant and the full amount will be due soon after the end of the study.
But for many, student loans are the only way to make ends meet – and the option of claiming interest in the tax return is at least a small consolation.
The indication of interest as an income-related expense is also relevant if it is not matched by sufficient income to offset the interest. Later, when the first revenues are generated, the costs are taken into account as so-called loss carryforwards and subsequently credited to profit-reducing costs.
Other points that are relevant for tax purposes in the context of education and training:
- Interest on education loans
- tuition fee
- Shipping and handling
- Work equipment (notebook, office supplies, etc.)
- Travel expenses to the university
- Round trips to the working group
- Accommodation costs for foreign training places
- Costs for travel, accommodation and meals on obligatory study trips
Credit as a freelancer or self-employed
If there is an investment that serves the professional activity, self-employed and freelancers can claim the interest on the financing loan for tax purposes. Basic requirement: There must be proof of this in the form of an invoice.
If there is a car for professional use, the car loan is also tax relevant. Occupational use is when the vehicle generates revenue directly or indirectly (eg in the field or for business appointments).
In addition, private and professional use must be clearly visible through a logbook or the 1% rule. If there is an exclusively professional use, the interest is completely deductible.
The discount is an amount that is deducted directly from the total loan amount and represents an advance payment on accrued interest. Accordingly, the monthly rates and the interest rate for which the discount is applied are reduced.
Borrowers agreeing to such a discount may, in the case of a market discount, indicate the costs directly as expenses if the loan is tax-relevant.
If the total exceeds the usual rate, the expenses are to be applied equally to the term. In addition to the discount, the ground rent may also be deductible.
In case of early repayment of a loan, eg. For example, due to a refinancing by the change of the lender, which makes sense when a contract with expensive interest is exchanged for current low interest rates, the Bank may incur a prepayment penalty.
If this is the case, you can specify the amount due as a cost of income. Finally, the tax office is interested in the fact that the interest burden decreases.
In other words, if the loan is repaid in order to sell an object free of charge, for example: then the prepayment penalty is not deductible.
Advertising costs vs. additional expenses
If interest on a professional loan or leasing arises, the charges are classified as income-related expenses. This accepts the tax office but only if the professional purpose is clearly given.
If there is a potential for mixed use (a classic is here, for example, the business suit, but also pulled out of the closet at the wedding of friends), the tax office quickly denied recognition.
According to the Income Tax Act, “expenses for the acquisition, safeguarding and maintenance of revenue” (§ 9 EStG) are deemed to be income-related expenses. Up to an amount of € 1,000, a flat rate applies to employees, for which no separate proof is required.
If the costs are higher, invoices or other documents are required. This is quickly the case when travel costs, missions, meals and work equipment as well as double housekeeping and insurance are included.
Advertising costs for real estate
If there is a rental, the expenses can be claimed for tax purposes. In addition to the accrued interest, these are:
- administrative expenses
- Expenses for brokers, housing allowances, advertisements or a rental service
- land tax
- Account maintenance fees, overdraft interest, etc.
- Insurance (liability, fire, water etc.)
- electricity costs
- Heating and water
- Cost of waste water, garbage collection, chimney sweep, street cleaning
- Caretaker costs
- Rides to the apartment or to the owners meeting
- Cosmetic repairs
- Legal fees
- evacuation costs
Above all the costs for brokers are interesting in this context, since since 2015 the orderer principle applies and thus usually the landlords have to pay the broker’s commissions.
Added to this is the so-called conservation effort, which is necessary to maintain the value of the object.
Maintenance of real estate
- Exchange of windows and doors
- Heating renovation
- Electrical installations
- roofing repairs
- house painting
- Renovation of wall tiles
- Renewal floor coverings
- bathroom renovation
Also, as a cost of income, borrowers can claim the costs associated with fundraising. This includes:
- acquisition fees
- notary fees
- Land Registry fees
- copying costs
- ride costs
What is not tax deductible?
In principle, all loans are not deductible, which are taken for private purposes – regardless of whether this relates to the wedding financing, the holiday or a private car.
The rule of thumb for the tax relevance of loans is that the loan will generate revenue or serve a professional purpose.
If the prerequisites are met, real estate loans, education loans, auto loans and company investments or the interest accrued on the loans can be used as income tax expenses. This reduces the profit and the tax burden decreases.
Since it is not always easy for the layman to correctly allocate the interest, but conversely the tax office looks carefully when it comes to reducing the tax burden, it may help to contact a tax adviser. The tax savings can quickly offset the consulting costs.