Do you have a loan? You can deduct interest on taxes
Having a loan these days is nothing unusual. There are a lot of people who have it. Who is looking for the one that will be advantageous should look at both the APR and the interest rate. If it makes up a substantial part of the total APRC, it is good. Both because you do not have to worry about different fees and accompanying payments, and because you have the possibility to deduct interest from taxes. It is one of the best known deductible items. If you haven’t used this option yet, it’s high time. You can save tens, but also hundreds of thousands of crowns.
Only for certain types of loans
At the outset, we have to say that it is only possible to deduct interest on some loans. If we look at the general characteristics of what they can be, they are loans that solve the so-called housing need. What do you think of this term? These are loans that relate directly to housing and its financing. If we are to be more specific, it is primarily two types of loans. And that is:
- Classic bank mortgage
- Building savings loan
Not just for yourself
Usually, the cases of use of the loans are quite clear. He is the one who intends to invest his housing in this way. So even a specific taxpayer. The latter also has the right to deduct interest. But the law also thinks of another situation. Interest deduction can be realized not only when the housing needs of a particular taxpayer are solved, but also when the housing needs of their loved ones are solved.
What the money was used for also plays a role
Let’s say you have these two loans. But that still does not mean that interest deduction is possible. It is also the role of exactly what the finances will be used for. We will return to housing needs here again. It is not possible to deduct interest rates if the loan was used, for example, to finance a holiday home such as a cottage or a cottage. Also, no deduction is possible if it has financed commercial activities, such as the construction of an apartment building that will also serve other tenants. Therefore, the possibility of deducting tax interest on these loans is linked only to options such as:
- Buying a house or apartment
- Reconstruction of family house or apartment
- Construction of a family house
What specifically can be deducted?
Many people are not quite clear about what can be deducted. They live in the mistake that it is possible to deduct every installment paid. But this is not the case. Each installment consists of principal and interest. The principal is the real amount borrowed. The interest was the increase. As regards tax reductions, only interest paid can be deducted from them.
What is necessary to have?
It is clear that, in the light of the above, it would be quite difficult for each taxpayer to calculate how much the principal repayed and how much interest was paid. This is one of the reasons why it is possible to ask a specific bank or building society for a statement of interest paid. The original must be kept, as it serves as proof that you have the right to deduct. It also helps you know exactly how much you deduct.
If you are applying interest paid for the first time, you must also have an extract from the Land Register. It will prove that it is not a recreational or commercial building, as well as that it is in this case that address the housing needs of the taxpayer, or someone close to him. They are, of course, close to the family. It is not possible to apply a deduction, for example, to a loan from which one of your friends finances their housing. It is not that simple after all.
What is the maximum deduction of interest?
Nothing is unlimited and this case just confirms it. If you are interested in exactly how much you can deduct, then we must say that the amount is definitely quite favorable. The maximum amount stipulated by law is CZK 300,000. This is the total. This means that this value must not exceed all deductible interest, for example on several mortgages and building savings loans together. Also note that this amount does not relate to the entire duration of the loan, but that it is an annual amount. This maximum can be deducted each year.
The first years you save the most mortgage
It is also good to look at how mortgage repayment works. Even in this, many people are not quite clear. If you look at the repayment schedule, it happens that the first months, or even years, you pay only interest. Only then do you repay the principal. What does this mean for you in practice? That tax deductions will logically be the largest in the first years and will gradually decline. It is good to count on this in the future and not let yourself be appeased by how much you can save on taxes in general and plan the following years in terms of your budget and your spending accordingly.
Finally, it is good to add that the deduction of interest on the mortgage or building savings loan is voluntary. Those who do not want to deduct them – for example, because of low taxes, do not have to. When his tax return is regularly zero, it is quite unnecessary to deal with extra administration.
However, those who pay taxes will appreciate the advantage. If we look at some approximate calculations, it can be said that with an average mortgage, it is not a problem to save tens, but hundreds of thousands, all the time. In the first few years, tax reliefs amount to several thousand. Although they are gradually decreasing, but if the mortgage is negotiated for thirty years, it is a considerable amount of money, which may not get the state, but it remains just for you. In this respect, state housing support still works quite well.