Tax deduction of credit costs – this is how it works

Today, many purchases and expenses of daily life are financed with loans . Whether it is a car, furniture, high-quality consumer goods or travel, loans are often used when there are not enough financial reserves of one's own. Financing from outside funds is almost always necessary for private construction projects. As helpful as a loan may be in individual cases, interest and repayment usually represent a noticeable burden. This would be lower if the borrowing could be claimed against tax.

Unfortunately, the tax authorities generally only recognize loan costs within narrow limits. This applies under both german and austrian tax law. In both – very similar – tax systems, loan interest can generally only be claimed if the underlying financing serves to generate taxable income. This means that the credit costs incurred in connection with private purchases and consumption are largely left out of the equation.

Interest on loans can be tax-reduced in this sense, especially in the case of real estate financing and loans for professional purposes. Below we provide an overview:

How loan costs can be deducted for tax purposes:

1.) loans for rental properties

In the case of rental real estate, loans are usually used to generate rental income. Since this is taxable income, the interest on your loans is also tax-deductible. It does not matter whether the loan is used to finance the construction of rental space or the maintenance (modernization or. Remediation). In the case of mixed-use buildings (owner-occupied and rental), financing costs can usually only be deducted in proportion to the rental portion – unless it can be proven that the financing was used exclusively for rental purposes.

2.) loans for owner-occupied real estate

In germany, credit costs for owner-occupied properties are generally not tax-deductible. In austria, there has been an exception in that loans for housing creation and renovation could be taken into account for tax purposes as part of the special expenses deduction. Both interest payments and redemption payments could be deducted. However, this rule only applies to income earned before 1. Loans taken out january 2016. The special expenses deduction remains available for these loans until 2020.

3.) loans for professional purposes

Loan costs are always deductible if they are taken out to generate earned income.

If a second home in another city is needed to reach a job, the related loan costs are recognized. This applies not only to credit costs in the immediate housing context, but also to relocation, brokerage, rental and renovation costs incurred further down the line.

In order to be recognized for tax purposes, car financing must also be used for work-related purposes and not only for travel between home and work. Typically this applies to self-employed and freelancers with outside jobs. If the vehicle is used both professionally and privately, the professional share must be proven (driver's logbook).

Self-employed persons and freelancers may also incur credit costs in connection with the financing of their office and business equipment (office furniture, EDP, technical equipment, etc.).) make valid.