Tax concessions on mortgages
In this page of our guide to home loans we will talk about the main tax breaks on mortgages provided by our legislation.
The mortgage is a financial instrument that has a strong social value as it is often used by families for the purchase of the house in which they will live. For this reason, the legislator provides a series of particularly advantageous benefits especially in the case where the purpose of the loan has precisely that social value mentioned above.
We can distinguish between two main types of benefits.
– Tax relief on the mortgage contract;
– Tax deductions .
Let’s look at both in detail.
Tax relief on the mortgage contract
These types of benefits are effective in the initial phase, the stipulation of the loan agreement. We talk about it extensively in the section on mortgage costs. Here we remember perhaps the most important one, namely the tax that was substituted for the purchase of the first house , which contains a series of tax burdens that must no longer be paid individually (mortgage and land registry taxes, registration tax, tax of stamp duty, taxes on government grants) and is equal to 0.25% of the amount financed . If, for example, we have the requirements to take advantage of the facilities provided for the “first home” and we are paid an amount of 200,000 euros, the substitute tax to be paid will be 500 euros.
Tax deductions relating to the loan agreement
The legislation provides for the possibility of using tax deductions for interest expense and ancillary charges on mortgage loans. This is a series of fairly complex rules that we will try to describe in the most relevant aspects.
We then start from the mortgages for the purchase of the house . So let’s see:
– in these conditions you can take advantage of the deductions ;
– who can use it ;
– the amount of the deduction ;
– on which cost items apply .
Under what conditions can deductions be used
- First of all, the loan must be requested for the purchase of the main house (and related appurtenances). To be more precise, the purchased property must be used as a dwelling
main within one year of purchase, and must be for the entire period for which deductions are requested. The law also includes some special cases in which it is possible to use deductions even if the property is not used as a main residence.
- The loan must be a mortgage, ie the mortgage of the building (also different from the one being purchased) must be established to guarantee the amount disbursed by the bank.
- The purchase of the property must take place within a year before and no later than one year after the stipulation of the loan agreement. In practice you can buy the property within a year of obtaining the loan, or you can enter into the loan agreement within a year of buying the property.
Who can use it
- Buyers who are also owners of the loan can benefit from the deductions. In the event that there were more than one holder, you will be entitled to a deduction in proportion to your quota;
- Buyers of only bare ownership can also benefit from it;
- The right to deduct is transmitted to the heirs or legatees who have taken on the loan.
The amount of the deduction
A deduction from personal income tax of 19% is envisaged for an amount up to 3,615.20 euros . In the case of co-ownership of the loan (or of several loan agreements) this limit must be understood as cumulative, so for example two co-holders can each indicate the amount of 1,807.60 on which to apply the 19% deduction.
On which cost items deductions are applied
Below are the main cost items that can be subject to deduction:
- interest expense;
- the costs of preliminary investigation and appraisal;
- notary fees (notary fee) for the loan agreement ;
- the tax replaced;
- brokerage fees required by credit institutions;
- taxes for registration or cancellation of mortgage;
- revaluation quotas depending on indexing clauses;
The deductions are also provided for the purchase or renovation of a property to be used as a principal residence. The following conditions must occur:
- the building must be used as a main residence, within 6 months of completion of the works;
- the loan contract must be stipulated within six months (prior or subsequent) from the beginning of the works.
In this case the total annual amount on which to calculate the deduction is 2,582.28 euros.
The advice of Mister Banca
It is important to estimate in advance what the tax benefit of tax deductions can be. In some cases the value can be significant and have a positive impact on the sustainability of the installment that we will have to pay to the bank. Keep in mind however that, while the installment is (often) a constant monthly commitment, the tax benefit is generally obtained once a year. Finally, we must never forget that regulations can change , and when it comes to fiscal aspects, management is often not what favors the tax payer.