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Mortgage interest deduction

The Dutch tax system has a specific tax advantage for the home owner: the mortgage interest deduction. The interest on a loan taken out for the purchase, maintenance or improvement of the owner-occupied home is tax-deductible under certain conditions. The terms of this mortgage interest deduction have changed several times over the years.

Not just for mortgage interest

Although the term suggests otherwise, the mortgage interest deduction does not only apply to mortgage interest. It concerns interest on the tax home acquisition debt. The home acquisition debt is any loan taken out to buy, renovate or maintain a home of your own. The loan interest on a personal loan is just as deductible - if the borrowed money was used for the home. The same applies to a loan from parents to children for this purpose.

Conditions for mortgage interest relief

To be able to deduct the interest from the home acquisition debt, a loan must meet specific conditions. Those conditions are:
  • If the loan is taken out on or after 1 January 2013, the loan must be repaid at least annuity over a maximum of 30 years. An interest-only mortgage or a mortgage that is only repaid at the end of the term is therefore no longer interesting from a tax perspective.
  • From 2001, the rule has been that the interest is deductible for a maximum of 30 years. Mortgages that were already in effect at that time, the term of 30 years started on January 1, 2001.
  • Anyone who sells an owner-occupied home at a profit must use the realized equity when buying another house. We know this rule as the additional loan scheme. If this is not done, the mortgage interest deduction does not apply to the entire new mortgage. In that situation, the home acquisition debt is lower than the mortgage amount.
  • In some situations one can enjoy temporary mortgage interest relief for two houses. For example, if the 'old' house is for sale and one has already moved to the 'new' house. Or if a new house is being built while one already has an own home. This is the relocation scheme.

How mortgage interest relief works

The mortgage interest deduction is not a simple deduction: it has some snags. First of all, the notional rental value. This is an amount that is added to the income of homeowners in box 1, after which the interest paid and costs of the home acquisition debt may be deducted. On balance, a deductible item remains, or actually a 'negative income from own home'. The income from your own home could never be positive until 2019. Even if you do not have (any longer) a mortgage, or a very low one. The Hillen Act ensured that in that situation you receive an extra deduction item "because of little or no home acquisition debt". The cabinet has really decided to abolish the Hillen Act. This does not happen suddenly, but in small steps of 3.33% per year.

Effect of mortgage interest relief

The mortgage interest deduction will lower your taxable income. You therefore have to pay less income tax. This is calculated in your income tax return. It usually turns out that you have paid too much income tax through your employer. The overpaid tax will then be refunded. This happens once a year, after your tax return has been filed and processed. Because it is a considerable amount for many people, it is also possible to get the refund in parts. In the same year in which you pay the interest. The tax benefit is in fact paid in advance. We call this the Provisional refund, which you can request from the tax authorities.

Limitation of maximum percentage of mortgage interest deduction

The tax brackets in box 1 go up to a maximum of approximately 52%. In the past, this automatically meant that the maximum mortgage interest deduction also amounted to approximately 52%. However, the government has decided to lower the maximum deduction rate. Since 2014, the maximum deduction percentage has decreased by half a percent per year. From 2020, this percentage will be phased out more quickly until a maximum deduction percentage of approximately 37 percent remains in 2023.

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More about the mortgage interest deduction on the website of the tax authorities
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