Mortgage interest deduction and your tax partner, what if your partner leaves, whether that is a relief or a burden is for us not relevant. Relevant is that there are tax consequences and we can get excited about.
Mortgage interest deduction
If you or you and your partner purchase a house together which will become your main residence, then the costs related to the loan taken out you can deduct from the income tax return.
If you are not married or not a registered partner with the person who you purchase the house with, not only the signature under the loan is your biggest investment that day, the purchase of the house also make you tax partners.
Being a tax partner implies that you file a joint tax return, you can decide who deducts what in the tax return. The income of the tax partner can also reduce your ability to claim a tax credit. If you both work and have children, then additional tax credits can be obtained. If one partner dies, which is not exciting, the other partner has the huge tax exemption amount which limits inheritance tax, that we do get excited about. So being tax partners has consequences.
Mortgage interest deduction and your tax partner – what if your partner leaves?
Leaving for a holiday is ok, but leaving the house you bought together because that is better for each of you your personal lives, then the house is no longer the main residence of one of the partners. The mortgage deduction is based on both partners residing in the house, but if one leaves the other one can only deduct 50% of the mortgage cost as the other partner only owns 50% of the house.
The same applies to the WOZ amount that is added to the income as a kind of threshold, that you also need to take into account for 50%.
Mortgage interest deduction and your tax partner – court case
A Dutch couple divorced in 2017, but she had already left the house they both own mid-2015. The man stayed in the house, paid all the costs and deducted all the costs. Not stated in this court case, but something we can share with you. Divorce applications are separately monitored by the Dutch tax office, because of all the tax implications that come with it.
As divorces are monitored, the tax filings are better looked at and the tax office notices that the woman registered herself at a different address. You do become tax partners if you purchase the house together that is your main residence, but if one leaves that address so is not registered at that address for at least 6 months per tax year, the couple is no longer regarded tax partners.
This was the case. The tax office denied 50% of the deduction.
The tax payer who stayed in the house went to court, but the court agreed with the tax inspector. They even tried in court to deduct the other 50% as costs of live of the leaving partner, which could be deductible if actual arrangements were made, which was not the case.
Tax is exciting
Having an argument with your partner is not exciting, but before anybody is asked to leave the house you both purchased and took out a mortgage for, think about your tax advisor. Contact your tax advisor to learn what is best to do, preferably not while you are having an argument that is.