May 2019
There are many benefits to buying a property. Apart from the fact that you own real estate of which the price may increase, there is the advantage of tax relief on the mortgage interest. The main rule is that the mortgage is tax-deductible if the property is your principal place of residence. In addition, a number of the costs related to the financing of the property are also tax-deductible
The following costs, amongst others, are tax-deductible and can be declared (one-time) on your income tax return: the notary costs for mortgage deed; the mortgage commission fee (paid either to the bank or the broker); the cadastral registration fee; the cadastral investigation fee; the appraisal fee; the administration fee for the mortgage deed and the bank guarantee fee.
In recent years, the government has been re-evaluating its overall mortgage legislation, resulting in a lowering of the maximum rate of deductibility (from 52% to 38% by 2028), but also in the following measures: mortgage interest is deductible over a maximum period of 30 years, provided the mortgage provides for monthly redemption payments (straight line or annuity) and the maximum mortgage amount is 100% of the purchase price of the property. Consequently, the additional expenses related to buying a house can no longer be completely financed by means of the mortgage so that buyers will ultimately have to bear these costs themselves.
Those who own a property and use it as their principal place of residence have to report a certain amount, related to the home ownership, on their income tax return. This amount is a percentage of the value of the property and is called the deemed rental value. This deemed rental value is based on the official value of the property, also known as the WOZ-value, which is determined every year by the municipality. Every year, the owner receives a so-called WOZ-decision, ‘confirming’ the value of the house, which is used as a basis for determining a number of levies and taxes and has been created in order to rule out the possibility of arbitrariness.
The general applicable rate of the deemed rental value is 0.75% of the WOZ-value. The balance of the deemed rental value and the interest can be deducted from your income.
You can receive a tax refund on the mortgage interest deduction every month by requesting a preliminary negative tax bill from the tax authorities. This is done by means of a special form. The tax authorities will then deposit the refund directly into your bank account.
Robin Schalekamp
robin.schalekamp@bdo.nl