If your house was sold with a residual debt and you finance the residual debt, the interest on the debt may be deductible. Under certain conditions, the interest on a residual debt is tax deductible for 15 years. How will you repay the residual debt, how will you finance it, how will you repay it? The interest on the loan to finance the residual debt or a revolving credit is tax deductible as mortgage interest, even if you do not finance the debt in a mortgage but with a normal loan from the bank. The disadvantage of a new loan for financing is the high interest rate when it concerns a consumer loan. The advantage is the deductibility of the interest, which means that the tax authorities also pay and your net interest paid is somewhat lower. The deductibility of interest makes the residual debt more affordable. Even if you move, it is possible in a number of cases to co-finance the residual debt in the new mortgage.
Selling a home with a residual debt in 2020 or 2021
Good news for those who own a home: house prices are rising, so the chance of residual debt upon sale has become smaller and the chance of excess value has increased. Sometimes the sale of a home yields less than expected or hoped, or households have a residual debt that was incurred in previous years and still has to be paid off. House prices have not yet recovered everywhere after the price decline in previous years. The mortgage is then higher than the value of the house and when you sell you are left with a residual debt. Because house prices are expected to rise further, the chance of residual debt upon sale will decrease.
Financing the residual debt of your home, interest on revolving credit is also deductible as mortgage interest
Then the financing of the residual debt that must be repaid. The way in which you take out a loan to repay the residual debt depends on a number of factors:
- If you have a National Mortgage Guarantee, the debt may be forgiven;
- If you are going to buy a new house, the residual debt may be included in the new mortgage;
- If you are going to rent, you must take out a consumer loan, a personal loan or a revolving credit as financing;
- If you are going to buy and the bank does not want to finance the residual debt, you will also have to look for a consumer loan. The bank may co-finance the residual debt with a new mortgage, but is not obliged to do so.
The interest on the residual debt of your owner-occupied home
The amount of interest on a residual debt depends largely on the way in which you can take out a loan. I say you can close it on purpose, because the bank has to cooperate. In practice, however, banks are no longer eager to finance a residual debt in the mortgage when you buy a new house. Not entirely illogical, because in principle there is no collateral for the residual debt, which means that a bank runs more risk. In practice, this means that you may be forced to finance the residual debt consumerically and a consumer loan is more expensive.
Interest on residual debt is tax deductible
Normally you are not allowed to deduct the interest on a consumer loan in box 1 of the income tax. The government has made an exception for the interest on the residual debt. For the next 10 years, you may still claim that interest as a deductible item as mortgage interest for your own home, and from 2015 this will be 15 years. This also means that you will receive part of the interest back through the tax authorities. This refund can amount to a maximum of 52%. Fortunately, because this makes the interest more affordable. You will not get everything back, but if you have a high income, you will get more than half. Those with a lower income get less back, but still roughly a third.
Residual debt 2021 and 2022
The most important condition is that the residual debt may not have arisen until 2021 or 2022. For example, a home that you sold in 2017 with a residual debt will have deductible interest for 15 years, but a home sold with residual debt only in the period 2018 – 2021 will not.
How much residual debt do you actually have?
A calculation example. Suppose you sold your home in 2017 for 200,000 euros with sales costs of 1,500 euros. Suppose the mortgage is 225,000 euros. Then your residual debt is equal to 225,000 – 198,500 euros = 26,500 euros. The interest you pay to finance this amount is tax deductible.
Loan residual debt does not have to be annuity, the financing of the residual debt
The Tax Authorities impose a number of requirements on the method of financing the residual debt. For example, a new mortgage must be repaid at least on an annuity basis. This obligation does not apply to the loan you take out for your residual debt. Moreover, with a personal loan you are also obliged by the bank to repay, but this obligation does not exist for a revolving credit. Regardless of how you finance the residual debt, the interest will be deductible on your income tax return for the next ten years. And it is best to look for the cheapest loan and request multiple quotes.
Conclusion tax deduction interest residual debt for owner-occupied home 2021 and 2022
A residual debt is a major setback when selling your house, while the tax deduction of the interest is a windfall. If the debt is not waived by the NHG and a higher mortgage is not possible, the interest on the loan will be higher. Don’t leave it at that, but look for the cheapest loan, even if the tax authorities pay you back part of it.
- Is interest on refinancing residual debt still deductible in 2021?