Can You Claim Mortgage Interest Deduction?
Can You Claim Mortgage Interest Deduction? - When interest expense generated by the mortgage can create tax savings: conditions and limits to correctly fill out your 2020 tax return.
The current tax law provides for the possibility of deducting 19% of the interest expense and related ancillary charges generated by a mortgage on tax returns. This facility, which has been modified several times over the years, is regulated with a number of limits that restrict the scope of implementation both in accordance with the type of building (main dwellings, secondary dwellings or non-residential buildings) and according to the year in which the mortgage agreement was entered into.
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As for the type of building, only the main dwelling allows the deduction of interest. As a result, you will not be able to benefit from this benefit when taking out a mortgage on a home where you do not live, such as a second home purchased for the holidays. So let's try to understand what are the rules that allow the deduction of interest:
- The necessary conditions;
- Limits: maximum cap achievable;
- The limits for deductibility;
- All documents to be kept in order to obtain the deduction.
The necessary conditions
- a member of the Italian or a Member State of the European Community. The mortgage holder may also be extra-community but must still have a stable organization in Italy;
- The contract must have been entered into for a maximum of one year before the purchase of the property or can be entered into in the twelve months following the sale. The legislation therefore gives freedom of movement as it allows you to take out the mortgage first and then buy the property, and vice versa, providing a large time frame of 12 months. At this juncture, however, there is a case of exclusion which concerns the hypothesis that the original contract has been terminated and a new one must be entered with an amount equal to or less than the remaining share of capital to be repaid;
- within 12 months of purchase the buyer must allocate the property to the main residence, or first home as it is usually defined, for himself and his family, or for relatives within the third degree or related within the second degree.
Limits: maximum cap achievable
- interest expense;
- ancillary charges relating to the loaned capital loan agreement;
- revaluation quotas that depend on indexation clauses.
The entities deduct the interest related to their share. For example, the mortgage of the first home involved with a married couple allows each of them to take advantage of the deduction for the part owed, except in cases where one spouse is fully dependent on the other. In the latter case, the head of the household can deduct the entire sum. The right to deduct is not lacking in cases where the person moves residence to health care institutions or for work reasons, as long as the house is not rented.
Limits for deductibility
- notary's fee;
- register tax, mortgage tax and land tax;
- any expenses incurred in cases where the authorization of a court is required to protect;
- any costs incurred related to the purchase in the context of competition proceedings.
- fee of the notary present at the conclusion of the loan;
- The commission owed to institutions for the conduct of banking brokerage;
- Technical and investigative costs;
- related tax charges such as registration or cancellation of a mortgage, the replacement tax on the loaned capital;
- penalties for early mortgage termination:
All documents to be kept in order to obtain the deduction
- payment of installments for the fiscal year under consideration;
- the original of the mortgage agreement in which it is pointed out that the financing was provided for the purchase of the first house;
- the purchase agreement of the property that allows you to check both the time constraints and the real costs incurred;
- all documentation attesting to the costs incurred for ancillary charges;
- the self-certification in which the owner declares that the property has been purchased and used as a main residence according to the rules and terms of the law.
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