Reducing or eliminating tax-declarable property income can be done! In fact, the tax authorities reward borrowers by granting them tax reductions. A significant tax benefit when you own property. But what conditions have to be met to be eligible?
If you own property, you are taxed in two ways: via the annual property tax, which is based on the cadastral income, and via your tax return, as your property income is added to your other income. But what many people do not know is that you can bring down your tax bill thanks to the interest on the loan you have taken out! How? By deducting the amount of the interest up to the total amount of your property income.
How is your tax base calculated?
Regardless of whether you are an owner, possessor, life tenant, etc., your property income is calculated on the basis of the cadastral income of the property or the rent collected.
In concrete terms:
1. A main residence is exempt from tax.
2. A property rented to a natural person (not used for a professional activity) or a property that is not rented is taxed on the basis of the indexed cadastral income increased by 40%.
3. A property rented to a private individual and used for a professional activity or a property rented to a legal entity is taxed on the basis of the rent actually collected, less the fixed charges of 40%.
4. A property abroad is taxed on the basis of its gross rental value if it is not rented; otherwise, the tax is based on the rent actually collected.
All these cadastral incomes and rents added together form your property income and are taxed at a marginal rate of 50%.
What conditions have to be met to deduct interest?
Irrespective of the type of loan you have, you must be able to prove that there is a link between this loan and your property. In other words, that the funds made available are intended to be used for property. In addition, the fact that you do or do not benefit from a tax reduction relating to a mortgage taken out to finance or renovate your own home does not affect the deduction of ordinary interest.