Tax deduction of borrowing costs – this is how it works

Today, many everyday purchases and expenses 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 an individual case, interest and repayment are usually a noticeable burden. This would be lower if the borrowing could be claimed for tax purposes. Unfortunately, the tax authorities generally only recognize credit costs within narrow limits. This applies to both German and Austrian tax law. In both – very similarly structured – tax systems, loan interest can generally only be claimed if the underlying financing serves to generate taxable income. This largely leaves out credit costs incurred in connection with private purchases and consumption. In this sense, interest on loans can be deducted from taxes, especially in the case of real estate financing and loans for professional purposes. In the following, we provide an overview:

How borrowing costs can be deducted for tax purposes:

1.) Credits in the case of rented real estate

In the case of rental real estate, loans are usually used to generate rental income. Since the income is taxable, the interest on the loan is also tax-deductible. It does not matter whether the loan is used to finance the construction of rented accommodation or the maintenance (modernization or renovation) of the property. reorganization). 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, borrowing costs for owner-occupied properties are generally not tax deductible. In Austria, there was previously 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 and redemption payments could be deducted. However, this rule only applies to pre-1. January 2016 loans taken out. The special expenses deduction remains possible for these loans until 2020.

3.) Loans for professional purposes

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 context of housing, but also to moving, brokerage, rental and renovation costs incurred in the further context.

In order to be tax deductible, car loans must also be used for business purposes and not just to travel between home and work. Typically this is true for self-employed individuals and freelancers who work in the field. If the vehicle is used for both business and private purposes, the business portion must be proven (logbook).

Self-employed persons and freelancers are also allowed to pay credit costs related to the financing of their office and business equipment (office furniture, IT, technical equipment, etc.).) claim.