The interest on a loan taken for the purchase or renovation of an owner-occupied home is tax-deductible. Tax-deductibility applies if the home is the regular residence of the owner or his or her family.
By contrast, you cannot deduct the tax on the interest on a loan for a holiday home or the interest on a company loan paid in connection with the maintenance charge. Customers are often advised to take a bank loan to pay off the housing company loan to avail of the tax deduction right.
Deducting interest expences
- In 2016, the deduction right is 65% of the interest ( in 2017 45 % and in 2018 35 %).
- Interest expenses are deducted in the first instance from capital income (e.g. rental and dividend income).
- If you have no capital income, or its amount does not allow a deduction, you get a special credit for deficit in capital income in the taxation of earned income (such as salary or pension).
Credit for deficit
- The credit for deficit is 30% of the amount of the interest that cannot be deducted from your capital income.
- If the loan is taken for the purchase of a first home, the credit for deficit is 32%. The tax deduction right applies for 10 years and also if you own at least half of your first home.
- The interest on a loan taken for the purchase of a partially owned home can also be deducted. Any interest included in a rent, however, cannot.
- The interest on a loan used to pay for the right-of-occupancy payment is tax-deductible.
Asset transfer tax
- If you are a first-time home buyer and aged 18–39 years, you are exempt from asset transfer tax if you own at least half of your home and reside there permanently.
- If you have previously owned half or more than half of a residence, you are not considered a first-time home buyer and you must pay the asset transfer tax.
With the right interest hedging products, you can protect your finances even when market interest rates change drastically.
FlexiPayment gives you leeway for your monthly loan repayment. Another alternative is to extend your instalment-free period. See which one suits you better.