What are the current tax rules and is interest deductible? Can you deduct the interest that you pay per year from the tax?
The rules for deducting interest paid from income tax are subject to continuous change. In the past, you could deduct all interest paid on a loan from income tax. These days, this has been curbed.
Interest on various loans
The interest that you pay on loans such as a personal loan, revolving credit or a mini loan are not deductible. Therefore, you cannot deduct the interest on the so-called flash credit. These types of loans have a much higher interest rate than, for example, a mortgage on a home, so the impact is quite large.
A mini-loan in particular can have an interest that can be around 14%. If you want to borrow money quickly, you cannot deduct the interest from the tax with this type of loan.
Mortgage interest deduction
In most cases, the interest that you pay on your mortgage is still deductible. However, this too is being further restricted. Before you take out a mortgage also ask the question is interest deductible?
The interest on the popular interest-only mortgage is no longer deductible. You only qualify for a tax deduction for a new mortgage if you also pay off the loan. This can be in the form of an annuity or linear mortgage.
This does mean that your monthly payments will be higher because you have to repay your mortgage in addition to the interest.
Further curtailment of mortgage interest deduction
Where in the distant past you could still deduct all interest on all loans and debts, now even the mortgage interest deduction for your own house is increasingly limited. Since January 2013, the rule applies that only the mortgage interest is deductible if you also pay off your mortgage. Fortunately, this arrangement does not apply to mortgages taken out before that time.
A mortgage normally has a long term, with a maximum of 30 years. This is slightly different from the fixed-rate period. For example, you can fix a 30-year mortgage with variable interest or the interest for a year. If this fixed-rate period has expired and it is being determined again, then there is no question of a new mortgage. In that case, the interest simply remains deductible. The interest is tax deductible in box 1. The year in which you may deduct the mortgage interest is the year in which you pay the interest. So make sure that you have paid the interest due before 31 December.
It is also the case that the maximum rate at which you can deduct the interest from the taxable income is reduced. In the past, if your income was taxed at the highest rate of 52%, you could also deduct the mortgage interest at 52%. In 2014 it was decided that this deduction would be reduced by 0.5% each year, to a maximum of 38% in 2014.
However, it was decided in 2018 that this will be introduced more quickly and that the restriction will be reduced by no less than 3% from 2020. In 2023, the maximum deduction is only 37.05%.
In my opinion, the constantly changing plans cause a lot of unrest. When you buy a home, you make a calculation for yourself of how much you would like to pay in a mortgage. Then suddenly your calculation turns out to be incorrect because the government is re-adjusting its plans.
If you want to sell your old home and buy a new one, make sure that you are well aware of the latest tax legislation. The answer to the question is interest deductible: Only mortgage interest and not all mortgage interest.