In the Netherlands you can purchase a home and deduct the mortgage interest. The mortgage deduction is a bit complex, even for native Dutch tax residents.
How does it work?
The moment you purchased a home that is your main residence, you can deduct all the costs related to the loan taken out to purchase the house. Often this loan is a mortgage with the bank, but you can also take out a family loan. If you have a family loan, this needs to be reported with the Dutch tax office.
Deductible costs are the costs related to the mortgage advise you received, notary costs, valuation costs and the actual interest you paid.
What refund can you expect?
The refund you can expect on the mortgage deduction depends on the taxable income you earn. If your income is in the 37% tax bracket, you can have 37% of the costs refunded. If you are in the 42% tax bracket, you can have 42% of the costs refunded. You would assume that if you are in the 52% tax bracket that you can have 52% of the costs refunded. Unfortunately that is no longer the case.
The aim of the Dutch tax office is to have the mortgage deduction abandoned from the income tax deductions and move the house and the loan to Box 3. Box 3 stands for your world wide assets that are taxed at 1.2% tax.
If you are in the 52% tax bracket, your 52% tax deduction is reduced 0,5%. In 2013 you could deduct at 52%, in 2014 51,5%. In 2015 51% and now in 2016 the deduction is maxed at 50,5%. In 2042 the Government will be at 38% and that equals the Box 3 taxation and then the house is moved from Box 1 where it currently is to Box 3.
Complex story, the bottom line is that if you purchase a home and deduct the mortgage interest, the deduction becomes smaller every year.
Is the deduction limited?
The deduction of the mortgage interest is limited by the so called WOZ value of the house. Every house in the Netherlands is valuated by the county. That value we refer to as WOZ value. Based on the WOZ value you pay your local tax, whether you rent or own the house.
In the income tax return where you report the paid mortgage interest, you also mention the WOZ value and then 0,75% of that value can be regarded a threshold. Anything exceeding the threshold is deducted from your taxable income.
Can maintenance costs, a new roof or kitchen be deducted from the taxable income?
Yes and no.
Yes when you are owner of a so called Rijksmonument, a recognized national monument. Maintenance costs can be deducted from your taxable income for 80% of the costs. That said, what you think is maintenance and what the tax office accepts as maintenance can be two different worlds. We always recommend you contact the special department with the tax office that is involved in the Rijksmonument deductions before you start the renovations. Then already you can agree with the tax office which costs will be accepted. Not only huge amounts are involved, as a bit of certainty is very much welcome. Moreover, you can budget better based on the amount of the tax break.
No when you do not own a Rijksmonument.
Purchase a home and deduct the mortgage interest
Expat Housing Seminar
Every so often the Expat Housing Seminar arranges an evening during which you are very much welcome to visit the seminar. In this Seminar Expat Mortgages will explain how you can obtain a mortgage. Mie-Lan Kok explains you what you can expect from a real estate agent regarding the purchase of the house. Buma Algera notaries will explain what is the position of the notary in this transaction. Orange Tax Services will explain you about the fiscal aspects when buying a home.
Please check out the website to see when is the next seminar:
Orange Tax Services
How can we assist you in the Purchase a home and deduct the mortgage interest case? We can arrange for you the monthly preliminary refund. If you are client of Expat Mortgage, we can arrange for this service to be free. At the end of the year you are obliged to file an income tax return, that we can do for EUR 370 incl VAT.
If you are owner of a so called Rijksmonument, we can assist you in the contact up front with the Dutch tax office to determine what costs are regarded deductible maintenance costs and what are not deductible costs.