Do you know that you can deduct up to 30% of interest costs on all your loans except the Right & Save loans? Oh yes! The interest deduction was introduced to give more people the opportunity to borrow and own their home. But how it actually works and what you need to do to use it – we tell you here.
What is interest deduction?
The interest deduction is a kind of tax reduction, which means that you are allowed to deduct the interest costs in your tax return. The purpose of the deduction is that it will be cheaper to borrow money and that more people will be able to own their home. You can only use the interest deduction if you have a capital deficit, ie if the interest expenses are higher than your capital income. For example, income from capital can be the money you have earned from a home sale, interest on your bank savings or dividend payments. If the deficit is less than USD 100,000, you receive a tax deduction of 30%, if it is more than USD 100,000 you can deduct 21% on the remaining amount.
Rules for interest deductions
These requirements and conditions must be met in order for you to use the interest deduction:
- You must have paid taxes and interest.
- Your interest costs must exceed USD 1000.
- You must personally be responsible for the loan.
- You have a deficit of capital.
Other loans covered by the interest deduction
Not only mortgages are covered by the interest deduction, but all loans except student loans from Right & Save. You can thus use the deduction for your car loans, private loans, sms loans and the like.
How the interest deduction works
What you need to do to deduct your interest expenses is to review, sign and submit your income tax return. Your lender will send your control data directly to the Swedish Tax Agency. The interest deduction is thus fully automatic. However, it may be good to know is that there is a certain turnaround for various tax reductions. The final sum is affected by, among other things, the job tax deduction, pension deduction and maritime income deduction.
How to calculate the interest deduction
To calculate how much you will receive in interest deductions:
- Calculate how much you pay in interest on your loans each year. If you have a variable interest rate, the sum is more approximate, but it is usually good to estimate.
- Calculate how large your capital income is expected to be.
- Take the amount of capital gains minus the sum of interest expenses, the amount becomes less than zero you have the right to deduct 30% on a deficit up to 100,000. In addition, the deduction is 21%.
When two people share a loan
If you are several people sharing a loan, you have the opportunity to adjust the distribution of the tax reduction. An example is if you and your partner have a mortgage together and you pay a lot different. If you pay 60% of the mortgage and your partner pays 40% you can adjust this in the declaration, otherwise the tax reduction will be distributed 50-50 between you. The easiest way to make sure it gets right is to contact your lenders and they can make the adjustment.
You usually pay interest on a monthly or quarterly basis, and then receive a maximum of 30% of interest costs after the declaration. But you also have the opportunity to apply for a tax settlement of the mortgage. Then you pay less tax during the year and therefore do not get back as much money in the tax refund. If you want to apply for a settlement for your mortgage, you should contact the Swedish Tax Agency.
Interest rate compensation is also deductible
You might think that you are rewarded if you repay your loan early, but that is not the case. On the contrary, if you repay the loan before the term ends, you will have to pay a fee if you have a loan with a fixed interest rate. This fee is called interest rate compensation. The reason the lender charges this fee is because they lower the interest rate when you bind your loan. When you repay the loan in advance, they simply do not receive the income they have calculated. However, interest rate compensation is also deductible and you can get back up to 30% of the amount when you declare.Sometimes, unfortunately, the lenders forget to submit the information for the interest-rate compensation to the Swedish Tax Agency, so review your tax return carefully before submitting it so that all information is included.