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.
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.
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 .
Who can use it
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.
Below are the main cost items that can be subject to deduction:
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:
In this case the total annual amount on which to calculate the deduction is 2,582.28 euros.
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.