Deduct loan interest from tax
Deduct interest on a loan from tax. If a loan is taken out, the repayment is usually made in monthly installments. The installments consist of repayment and interest. Under certain conditions, you can claim the interest as advertising costs in your personal tax return. This will reduce your taxable income and lower the tax burden.
In this article, you can read the conditions under which you can claim the interest in financing in the tax return.
Typical cases for the deductibility of loan interest
- You buy a property and rent it in whole or in part. This is the most common way to include loan interest in the tax return as an expense.
- You are an employee and take out a loan for a second home because the place of work is too far from your main residence. In this case, too, you can take the financing costs into account in the tax return.
- You are a freelancer or self-employed. If you take out a loan for the investment in your work (e.g. laptop, company car) you can claim the accrued interest. The prerequisite is always that the investment for your work as a freelancer or self-employed was made.
You cannot deduct the interest in these cases
- You are an employee and take out a loan to buy a car. You use the vehicle for trips to work. In this case, you cannot take the loan interest into account in the tax return, because the legislator already takes the acquisition costs into account in the travel allowance.
- An installment loan is taken out for consumer goods, for example, a TV, a new kitchen or a vacation is booked. There is no possibility of deductibility here.
In your personal tax return, you state all income. You also state the expenditure that is necessary to generate income.
Example: You generate a rental income of USD 10,000. In addition to depreciation, property tax, insurance, and other expenses, you can also deduct the financing costs. After deducting all costs, 8,000 dollars are left as income from rental and leasing, for example. The tax office now takes the value of 8,000 dollars instead of 10,000 dollars as the basis for calculating your tax.