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High income, low mortgage deduction – why and how does it work?

If you own a Dutch house with a mortgage, the mortgage interest deduction will sound familiar. However, some people have a “Tariefsaanpassing” in their calculation. This would translate to rate adjustment. What is this and how does this work? Please continue reading to find out.

High income, low mortgage deduction

In 2010 the European Union dictated the Netherlands to abolish the subsidy on housing in the form of the mortgage deduction. In 2011 the maximum tax rate against which you can deduct the mortgage costs started dropping. Now in 2021 the maximum rate is 43%.

In case your income exceeds EUR 68.507, the excess is taxed with 49,5% income tax. If the mortgage is deducted from the higher income, the deduction is done at 49,5%. As that is more than 43%, you see in the tax calculation a Tariefsaanpassing. This is the correction to a maximum deduction of 43%.

If you would like to know more about deductible costs, please check out this blog post: https://www.orangetax.com/2021/09/13/deductible-costs-what-is-tax-deductible-and-how-does-it-work/.

High income, low mortgage deduction
High income, low mortgage deduction

How does it work?

You cannot take the rate adjustment into account yourself, this is done in the Tax calculations.

The way this is calculated is as following:
You deduct the tax free threshold of EUR 68.507 from your income. The remaining amount is compared to the deductible costs. The lower of the two is used in the following calculation. Over this amount, the rate adjustment will be 6.5% (2021 rate).

Example
Your taxable income is EUR 100.000, so exceeding the EUR 68.507 threshold. If we deduct the threshold, EUR 31.493 remains. The deductible costs relating to the property are for instance EUR 15.291. EUR 15.291 is the lower of the 2 (EUR 31.493 and 15.291), over this the rate adjustment will take place. 6.5% of 15.291 is EUR 993.


This rate adjustment is added in the calculations as tax due, causing a lot of confusion. It is not actually tax that is due, but because the deductible costs are deducted for 100%, this is the way that the Tax authority corrects this.

No more mortgage deduction

In 2023 it is expected that the percentage of deductible costs that you can receive will lower to 37.05%. Wise men have told us that this equals the moment of transferring the home from Box 1 to Box 3. Men can be wise, but politicians need to sell this to the audience at large without losing the next elections.

How to survive as politician a bad news message? Simply ask someone else to bring the news. For instance Klaas Knot. Klaas Knot is the Dutch central bank director. He is the conscience of the financial world. He constantly brings up the fact that he system of mortgage deduction is a danger for over financing among things. Should be abolished.

New for me is that my tax advisor organization now also challenges the mortgage deduction. However that is from a practical point of view. The simple rule introduced in 2001 has been modified to help the less fortunate in life. Also modified by each political party in the Netherlands that has an opinion. The straight forward mortgage deduction is workable. But in case of death, divorce or marriage/partnership, it is a nightmare. Should be abolished.

Tax is exciting

We think tax is exciting. We are not always excited about politics, as they tend to make a simple plan complex. That is currently happening with the mortgage deduction. In the old days you could at the back of a Heineken beermat calculate the tax refund. Now a sophisticated program is required for a simple calculation. Even though excitement about the rules is out the window, we would be very pleased to assist you claim the mortgage deduction.

Heineken beermat
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