Acquisition means also the erection, expansion and remodelling, modification of utility systems of construction works, changing the division of spaces in construction works and the building and installation work related to the technical refitting of construction works on the basis of a building permit or building design documentation. A building permit is issued by the local municipality or another competent authority and is entered in the state register of construction works.
- The right to deduct has only the person who is both the borrower (the main borrower or co-borrower) and also the owner of the housing.
- The right to deduct interest payment shall not apply to the guarantor of a loan, even if he or she is the owner of the housing.
- If there is a joint or common ownership of the housing (i.e. there are two owners of one housing) and both persons are also the loan applicants, in such case both persons may declare the housing loan interest and deduct it from their income in proportion to the part of ownership.
- Upon transfer of a housing where the loan interests are deducted from the taxpayer's income, the person will be deprived of the right to deduct interest as of the date of the transfer of housing, i.e. from the date when the ownership is transferred to another person.
- If a taxpayer deducts interest on a housing loan or lease taken before 1 January 2005 for acquiring a housing for his or her spouse, parents or children and has acquired the housing for himself or herself for a loan after 1 January 2005, the taxpayer has an option: which of the interests to deduct from his or her income. The interest payment for a loan or finance lease taken for acquisition of only one housing may be deducted.
- In the case of the loans taken as of 2005 the borrower may deduct the interests from income only when the housing was bought for the person himself or herself.
- If in the same year the loan contract on acquisition of one housing is terminated and a new contract for acquisition of another housing is concluded, the interest payments of both contracts may be deducted from income. It is applicable on a precondition that the interests are not paid at the same time.
For borrowers an opportunity in the internet banks environment will be made to submit data about paid housing loan interest to the Tax and Customs Board.
Data submitted does not include information for whom the housing was bought. For that reason data about paid housing loan interest is shown in every borrower´s pre-completed tax returns.
If a borrower has not obtained the housing for his/her own residence, for example, the dwelling is let out on hire or used in business activity, he/she must delete the data about loan interests from his/her electronic income tax return or make a relevant correction in the tax return filled in on paper before.
The Tax and Customs Board may ask you to provide some additional evidence for checking the intended use of a housing loan, if necessary. We advise you to maintain all relevant documents.
The right to deduct the housing loan interests in the event of construction works is certified by a copy of a building permit or building design documentation.
The aforementioned documents need not be enclosed to the income tax return but they must be submitted at the request of the Tax and Customs Board. If a taxpayer fails to provide any evidence, the tax authority may refuse tax incentives.
If the housing loan was not fully used for acquiring a housing
If the housing loan was not fully used for intended purposes, the taxpayer must enter the percentage (%) of intended use and the appropriate amount of interest in table 9.5 on the housing loan interest of the form A of the income tax return.
A borrower has used the earlier loan for intended purposes – he bought an apartment as a housing. In September he took an additional amount of loan of 6400 euros. He used this money for repair works where the building permit or building design documentation was not required. For it is not possible to deduct the interest on the part of loan that was taken for repair works, the percentage of the loan used for intended use must be calculated.
The amount of the remaining loan before receipt of an additional loan is 16 000 euros, the remaining loan together with the additional loan is 22 400 euros. Percentage of the loan used for intended purpose is calculated as follows: 16 000 / 22 400 x 100 = 71,43%. Interest on a loan paid before the receipt of an additional loan may be deducted 100%, while from September 71,43% of the loan interest may be deducted.
Transfer of the balance of interest not deducted from income to spouse
If the interest paid exceeds person’s taxable income or the limit of 300 euros, the person can transfer the balance of interest not deducted from income to his/her spouse. The balance of interest may be transferred to the spouse if they were married at the end of the calendar year and if the spouses’ proprietary relationship is jointness of property. If the spouse has sufficient taxable income, the spouse’s interest balance can be deducted from his/her taxable income.
A person does not have to calculate the interest balance. Upon filing the income tax return in the e-MTA, balance is displayed as part of the tax calculation and the information of the spouse to whom the balance is transferred is indicated automatically.
Cohabitants acquire a housing for a joint loan. One of cohabitants is a borrower, the other is a co-borrower. They both are owners of the housing in the equal proportion of 50%. Interests will be paid and the loan will be repaid from one person's bank account.
Explanation: The right to declare interest payment and deduction applies to both persons in the proportion of 50%. One person cannot declare full payment of interest for he or she is not 100% owner of the housing. (If the persons who took the loan are spouses and this is a joint property, the payment of interests may be declared on one tax return.)
Cohabitants acquire a housing for a loan. The borrower is one of them, while they both are owners of the housing in the proportion of 50%.
Explanation: The right to deduction of interest payment applies only to the person who is the borrower, and only 50% of the interest payment may be deducted. The remaining 50% of interest cannot be declared because half of the housing is not the property of the borrower. The other person is not the borrower, but being a borrower is a precondition for application of tax incentive.
Cohabitants acquire a housing for a loan. One person is the owner of the housing, while the other person is the borrower.
Explanation: Neither of them has the right of deduction. Although one person is the owner of the housing but he or she has not taken the loan in connection with the housing. The other person has taken a loan but he or she does not own the housing for acquisition of which the interest payment on loan could be deducted from income.
A married couple acquires a home with a loan – only one of the spouses takes the loan. The spouses’ proprietary relationship is jointness of property. The amount of interest is 400 euros per calendar year, which exceeds the limit of 300 euros.
Explanation: The spouse who is the borrower can deduct interest in the amount of 300 euros from his/her income and the balance of interest not deducted from income,100 euros, can be deducted from the other spouse’s income. The name and personal identification number of the other spouse to whom the interest balance can be transferred will be automatically indicated in the income tax return of the spouse who is the borrower.
A married couple has bought two apartments. For acquisition of both apartments a housing loan was taken. The married couple uses only one apartment for their own place of residence while the relatives live in the other apartment.
Explanation: Only the loan interests paid for the apartment used as the place of residence of the married couple may be deducted from income. The loan interests paid for the apartment at the disposal of their relatives may not be deducted from income.
A married couple carries out reconstruction work on their housing based on a building permit. For this purpose, one of the spouses has received a loan from a bank. The housing is a separate property of the other spouse because it was acquired as inheritance. The proprietary relationship of the spouses is jointness of property.
Explanation: The loan interest can be declared by the spouse who has taken the loan. If the amount of interest exceeds the taxable income or the limit of 300 euros, he/she may transfer the balance of the amount of interest not deducted from income to his/her spouse who can take it into account in his/her tax return.
Last updated: 28.04.2021