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 2015, the deduction right is 65% of the interest.
- 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.
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FlexiPayment gives you leeway for your monthly loan repayment. Another alternative is to extend your instalment-free period. See which one suits you better.