Deduct Loans From Tax

Claim credits for tax purposes

Claim credits for tax purposes

More and more private individuals need loans to fill a hole in the household budget. The reasons range from an additional payment to the financing of a car or home. However, there are financial burdens associated with a loan. The agreed installment payments are debited monthly. This creates limited financial scope. Deducting the borrowed money from the tax can therefore be a small relief. However, the legislator provides for narrow limits here with regard to personal loans.

Which loans can be tax deducted?

In order for credits to be tax deductible, they must generate income. In addition, this income must be taxable. Loans that are used, for example, to pay ancillary costs, to consume, to finance a car or even to own a home are therefore excluded from the regulation. Furthermore, only the cost of a loan, ie the interest, can be deducted from the tax. Repayment rates for the borrowed money do not count towards the amount that can be claimed for tax purposes.
Only the following three areas can be included in the tax return:

  • Loans for rental properties: Rental and leasing generally generate taxable income. For this reason, landlords can claim all expenses associated with the rental contracts for tax purposes. Only the net income has to be taxed. In addition to the cost of a loan, deductibility also includes aspects such as renovation costs, modernization measures and renovations. The interest that accrues in the context of a loan with regard to these aspects also counts as expenses.
  • Professional loans: Although employee loans are rather rare, it can happen that employees have to take out a loan due to the move or have financing costs for a second home. In order to be able to deduct such a loan from tax, it must either be used for a move, for renovation or for rent payments.
  • Self-employed loans: Even in self-employed activities, credit costs may only be deducted from the tax if the financing is accompanied by taxable income. For example, credit costs for business equipment such as computers or office furniture can be included in the tax return. Loans that finance a company car in the field can also be included in the tax.

In the tax return, only the cost of a loan and thus the interest can be claimed. The loan must also be linked to taxable income.

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