Deducting loan interest – what is and what is not?

The reasons for this may be complex, but a main reason for the Germans’ willingness to borrow is likely to be the current interest rate on loans, which is currently at a low. The German protection association for general credit protection – or short: Private credit checker – has certified a significant increase in loan financing in recent years. The majority of these loans are easily repaid by consumers, but many borrowers forget that they can also claim the corresponding loan interest for tax purposes. However, there are a few important things to consider that we have put together for the reader in a short article.

Conditions to be met

Which conditions have to be met with real estate loans in order to be able to deduct interest

Which conditions have to be met with real estate loans in order to be able to deduct interest

Loan interest that can be deducted from tax can be found primarily in the area of ​​real estate financing. The corresponding tax relief on the part of the declarant is also very useful here: if he makes an investment in a condominium, a single-family home or a new apartment or house, he can claim any loan interest while renting the property. In this case, the said loan interest can be entered as advertising costs in the Vuv form – or income from renting and leasing. Potential renovation or renovation projects for capital investments in the form of real estate that are rented out can also be made tax-deductible.

This basically includes all loans that are used to preserve the value or increase the value of the property and to continue to generate rental income. It is of central importance, however, that the relevant borrower only claims the respective loan interest, but no repayment installments. Furthermore, the declarant must prove to the responsible tax office that the loan in question has actually been used for the stated purposes – borrowers of real estate loans are therefore advised to maintain a separate real estate account to secure this requirement.

Tax deductible in other areas possible?

Tax deductible in other areas possible?

Moving loans can also be deducted from tax if certain conditions are met. If, for example, moving to another city or even a second home becomes necessary due to the pursuit of professional interests, and if a moving loan has to be taken out for this purpose, then its loan interest is also tax-deductible. The same also applies to loans that have to be taken out in order to pay a brokerage commission and to pay court and lawyer fees.

The self-employed and freelancers, who mainly use their vehicle for work, can also claim car loan interest for tax purposes. Loan interest for predominantly privately used vehicles cannot be deducted from the tax. Similar to the car loan, it is also the case for investment loans in professional training, such as student loans or loans for office equipment – here, too, the state enables the legislator to be tax deductible in the form of advertising costs.

Which loan interest

Which loan interest rates are in principle exempt from tax deductibility and according to which a distinction is made

Which loan interest rates are in principle exempt from tax deductibility and according to which a distinction is made

Especially in the private sector, it is not possible in many places to make interest tax deductible. This applies, for example, to loans for personal events such as weddings or private trips, as well as for personal loans. Nor can loan interest payable for the financing of privately used property be claimed for tax purposes. Even the popular overdraft facility with its generally very high overdraft interest is – in contrast to popular belief – in no way tax deductible. Because the legislator makes a fundamental distinction not according to the type of the corresponding loan, but according to the use of this for private or commercial purposes. If the respective loan is used for an investment purpose, the borrower’s loan interest can be calculated with tax deductibility.

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