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No more mortgage deduction?


Did you read that correctly, no more mortgage deduction? Maybe yes.

No more mortgage deduction

It might come as a shock to you, but it is indeed possible that as of 2023 there will be no more mortgage deduction. For us tax advisors this is old news. The European Union instructed the Netherlands at the start of the century to stop the subsidy on private housing.

As per 2011 this instruction of the European Union has been put in place. Since then the mortgage deduction could no longer be deducted at 52%, but max 51,5%. That maximum amount dropped to 43% in 2021.

What does that imply?

The mortgage deduction can be taken into account in the income tax return for max 43%. You might earn an employment income taxed at max 49,5% income tax, still the mortgage deduction can be set off for max 43%. That implies 43% of the balance of the mortgage deduction is actually paid out to you.

In 2022 that maximum is 40% and in 2023 it is 37,10%. Academics have stated that the 37,1% equals Box 3 taxation. This implies as of 2023 the possibility exists the house moves from Box 1 to Box 3. In Box 3 we do not know a mortgage deduction.

Why is this not communicated?

Recently we had elections and as it continues to go like it does now, we might soon have elections again. A politician that announces that the mortgage will soon no longer be deducted, does not get reelected.

Instead, the politicians send out people that are less vulnerable by the choice of the public to gradually announce the news. You might know Mr Klaas Knot, the person that predicts what is best for the people and the state, from a financial point of view. He was asked already to start publishing about terminating the mortgage interest.

That will cost a lot of tax

Box 3 taxes the house by taking the so called WOZ value, the value set by the county. From this value is deducted a possible mortgage debt. Over the balance is paid roughly 1.4% Box 3 tax, depending on the other aspect in Box 3.

As since 2012 it is set obligatory to repay the mortgage over a maximum period of 30 years, many home owners have already less debt then the WOZ value. That would imply the movement of the home from Box 1 to Box 3 will hurt them.

To avoid the public at large to complain, the Dutch Government has already published a plan to increase the tax free amount per person in 2022 from EUR 50.000 now to EUR 440.000.

Who will actually be affected by this possible change?

Right now the interest rate is about 1%. I think Henk Jansen of Expat mortgages will not appreciate it that I make it this simple. Let us assume it is 1%. The threshold of the deduction is 0,6% of the WOZ value. The WOZ value will after the purchase quickly equal the purchase price. Hence your deduction is 0,4%. That you will lose.

If numbers are high, and in this crazy housing market, numbers are high, even 0,4% deduction can become a high amount. When you are only able to afford the house when you take into account the income tax refund, this change will hurt you.

That implies new comers to the market and persons that loan a lot compare to the value of the house are affected as well.

The interest rate is now (May 2021) extremely low. A change from Box 1 to Box 3 will be noticed, but a lot of home owner have already little or no deduction. It will hurt a bit, not too much. Assuming the EUR 440.000 credit also gets in place. However, should the interest rate go up significantly in the period up to 2023, then this change will hurt much more people than it does now.

Tax is exciting

We think tax is exciting. We are excited about claiming some tax back for you. Like the home owner tax credit. We also understand that tax rules are under constant change, how else could we have a living? Timely communication about significant changes is important for everybody. The question is now, what is the timing?



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