If you took out a mortgage or other loan to fund the purchase, maintenance or improvement of an owner-occupied property the related interest and charges will qualify as deductible expenses of an owner-occupied property in Box 1. These expenses can be deducted over a maximum period of 30 years, which is the most common term of a mortgage. If you took out the loan before 1 January 2001, the 30-year period commences on 1 January 2001. Periodic payments towards a ground lease or building and planting rights can also be deducted. Partners can apportion the balance of the notional rental value and the mortgage interest and other deductible expenditure between them. For more information on partners and the apportionment of income and deductible expenditure, see Partners.
Own home abroad
You may only deduct interest and costs incurred in loans for the purchase, maintenance or improvement of your own home abroad if you opt for tax treatment as a residence of the Netherlands (resident taxpayer). If you opt for this, nearly all the same rules will apply to you as those applicable to Dutch residents. For example, you may deduct (your share of) the interest and costs incurred in a loan for your home. Whether you can deduct these expenses abroad as well is not relevant. It does not matter either in which country you took out this loan.
If your partner can deduct the interest and costs incurred in a loan for your own home abroad, these expenses can no longer be deducted in the Netherlands.
Write-offs and costs for maintenance of an own home are not deductable. These costs have been taken into account in the determination of the amount of the notional rental value for owner-occupiers (eigenwoningforfait).
Tax relief for those with no – or only a small amount of – outstanding mortgage on owner-occupied property
There is tax relief for those with no – or only a small amount of – outstanding mortgage on their owner-occupied property. This deduction can only be granted if the balance of the notional rental value of the property (eigenwoningforfait) after subtracting the deductible costs, such as mortgage interest, is positive. The deduction is equal to the difference between the notional rental value of the property and the deductible costs. When applying this deduction, the addition of the notional rental value may never result in a positive income tax component in Box 1.
Consumer loan rule
If you sell your owner-occupied property and buy another property in 2008, this may affect the deductibility of the (mortgage) interest. This is because you have to take the surplus value of the property sold into account when calculating the amount of outstanding mortgage on the property – i.e., the amount of the principal sum on which the interest is tax deductible – in respect of the new property. The surplus value is the difference between the sale proceeds and the debt on the property sold. This amount is known as the net revenue from the sale of an owner-occupied property. The amount of outstanding mortgage on the new property cannot exceed the purchase price of the new property minus the net revenue from the sale of the old property.
If you do not use the entire surplus value to finance the new property, you may not deduct all the interest and charges. The interest and charges relating to the unused part of the surplus value – the additional amount borrowed – will not be deductible. This part of the loan qualifies as a consumer loan and falls in Box 3.
If you buy a cheaper property, you may still declare the old amount of outstanding mortgage on the old property for an amount not exceeding the purchase price of the new property. The consumer loan rule does not apply to home owners who, before 1 January 2004:
- entered into an irreversible obligation to sell their owner-occupied property, or
- purchased a new owner-occupied property;
In all cases, there should be definite contracts of purchase and sale that are binding on the parties involved. However, such contracts may contain the customary dissolving clause, such as a financing arrangement clause.
The purchase price of your new property amounts to € 200,000. The acquisition costs (the property transfer tax and the notary’s and estate agent’s fees) amount to € 18,000. The total purchase costs of the property will then be € 218,000.
The sale proceeds of your old property are € 147,000. The amount of outstanding mortgage amounts to € 109,000 at the time of the sale. The surplus value will then be € 147,000 – € 109,000 = € 38,000 (the net revenue from the sale of the property). In that case, the maximum amount of outstanding mortgage on your new property will be € 218,000 – € 38,000 = € 180,000.
If you take out a higher mortgage, the interest on the part in excess of € 180,000 will not be deductible.
Home endowment insurance relating to mortgage for owner-occupied property
In the Netherlands, the mortgage taken out to fund the owner-occupied property is often linked to home endowment insurance (e.g., a savings-based mortgage or an endowment mortgage). In that case, the benefits paid under such insurance are used towards the repayment of the mortgage debt. Home endowment insurance is taxed in Box 3, but if the insurance is linked to the owner-occupied property, the interest component of the benefit is taxed in Box 1. The following exemptions may apply to the benefits paid under home endowment insurance relating to an owner-occupied property (Box 1):
- in the case of annual premium payments over 15 to 19 years inclusive: € 32,500 at maximum;
- in the case of annual premium payments over 20 years or more: € 143,000 at maximum;
The total exemption can never exceed € 143,000 per taxpayer during the latter’s lifetime.
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