How to factor in interest on a housing loan when filing income tax returns

Up to 300 euros of the interest on a housing loan paid in the previous year can be factored in. This means that one person can apply for return of income tax regarding interest on a housing loan in the amount of maximum 60 euros. Karin Ossipova, who heads the business line of loans against real estate collateral for natural persons at Coop Pank, described the most significant points that must be considered during declaration of income with regard to a housing loan.

A natural person has the right to deduct from his or her income interest on a loan or leasing taken for purchase of a residence or apartment for housing. Using the internet bank one can submit to the Tax Board information regarding the interest that is entered into a pre-filled income tax return form. The bank does not forward such data to the Tax and Customs Board automatically, however, the borrower can easily do it himself or herself, by putting a tick in the internet bank that confirms that the person wants to submit this data.

Interest on a housing loan can be deducted from taxable income in the amount of up to 300 euros, and the amount of income tax returned on such amount is 20 percent, i.e. maximum 60 euros. If more interest was paid, the remaining interest that was not deducted can be transferred to a spouse by entering his or her details in the person’s income tax return.

Only interest payments regarding a person’s own home can be deducted
It is allowed to deduct from income interest on one housing loan only. If the person filing an income tax return has taken a few housing loans, such person must decide details of which housing loan will be entered in the income tax return submitted via the internet bank.

The right to a tax incentive is given only to such person who is simultaneously the borrower and the housing owner, and the real estate purchased using the loan must be this person’s place of residence. The bank does not forward the information regarding the owner of the housing purchased using a loan to the Tax Board. In the internet bank the information that was entered regarding interest on loan in advance can be viewed by all persons who took a housing loan, including the main loan recipient and the co-borrower. The borrowers who are not the owners of the real estate related to the loan must remove the information regarding their interest payments from the income tax return themselves.

The loan guarantor does not have the right to deduct interest, even if he or she is the owner of the housing. If the housing is subject to co-ownership and the real estate has two owners, both of whom are also loan applicants, then interest on the housing loan can be declared and deducted from income in proportion to the share of ownership by both of them.

Upon a request of the Tax Board the person must prove that the loan is used as intended – for example, in case of a housing loan a building permit or design can be requested.

If a housing loan was used in addition to purchase or building of a house also for other purposes, for example, for purchase of furniture, only the interest paid on the loan part that was received for purchase of the house can be deducted. Interest on a housing loan used for performance of repairs cannot be deducted from income.

Declaration of income in case of sale of a home
While income tax generally must be paid on sale of real estate, when a person sells his or her own home, such person does not have to pay income tax. In case of sale of a home bought using a housing loan the loan interest can be deducted from the income until the time of conclusion of the sale transaction, i.e. until the day when the property was transferred to another person.

If in the same year the loan agreement concluded for purchase of one housing was terminated, and a new agreement for purchase of another housing was concluded, then interest payments made on the basis of both agreements can be deducted from the income. This can be done only if interest payments were not made simultaneously.

Additional information regarding interest can be found on the website of the Tax and Customs Board.