Loans and Interest on Loans
Banks report all their lending and their received interest payments to the Tax Administration. For this reason, if you have taken a loan in order to finance the purchase of a rental unit, the amounts are printed on your pre-completed tax return. Such a loan is not a home loan: instead, it is treated as a loan taken for the production of capital income.
If you rent out a dwelling that you own, you are entitled to claim the interest payments as expenses for the production of income. Similarly, if you had any additional expenses for the loan (various bank charges), you may claim them, too. For tax purposes, the loan is not treated as a home loan — instead, it is a loan for the production of income.
Please check that the loan's purpose is correctly printed on your pre-completed tax return. If there are errors or omissions, log on to Tax Return on the Web to make corrections or send the form back to the Tax Administration with your corrections on paper. Fill in the "Interest on loans" spaces as appropriate. Note: you must not deduct the paid interest together with the other expenses (maintenance, repair) relating to your rental operation.
Have more deductions than income?
If an individual (or an estate of a deceased person) pays interest, the amounts are primarily deducted from the individual's capital income. However, if it turns out that your tax-deductible expenses and losses exceed your taxable capital income, the result is a deficit, for which you can get a 30-percent credit against the income tax on your earned income. The percentage corresponds to the tax rate that applies on capital income.
But if there is not enough such tax to deduct from (in other words, to give you credit for a deficit in capital income – in Finnish: alijäämähyvitys; in Swedish – underskottsgottgörelse), the tax office will record an allowable loss in the capital-income category for you. The allowable loss can be carried forward for 10 subsequent years, and you can claim it from whatever capital income you have during those years.
Formula for calculating the deficit:
+ Capital income in €
— Expenses for the production of income
— Losses, if any
— Interest payments
= The Deficit (if the result is negative)