Deduction for home loan interest
If you have a home loan and you pay interest on it, you can usually deduct either all or at least part of the interest. The way the deduction is determined is affected by the way you use your residential property.
If you have taken a loan in order to buy your home as a first-time homebuyer, read the instructions for deductions.
Residential property or expenses for a major repair in the property
You can claim interest expenses for a home loan if you have taken the loan in order to buy a permanent home for you or your family or to pay for a major repair in your home. It does not matter whether the home is a single-family house or an apartment in a housing company.
Deduction for home loan interest
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The deductible part of the interest expenses is primarily subtracted from your capital income. However, if you have no such income or if your interest expense is higher than the capital income you receive, you will be treated as having a deficit of capital income. 30% of this deficit is deducted from your income taxes on wage income and other earned income.
Deductions for loans taken for investing in residential property
If you have borrowed money to buy residential property in order to rent it out, you can deduct all the related interest expenses. This is considered a loan for the production of income, i.e. you receive taxable income from the investment you made with the borrowed funds. For example, if you rent out an apartment you own and receive rental income for it, that is considered production of income.
The interest expenses for loans relating to residential-property investment are first deducted from your capital income. Rental income is capital income. However, if there is not enough capital income and you pay high interest, the result of your operation is negative. In this case, you are considered to have a deficit in capital income, and 30% of this deficit is credited from your tax on earned income. In addition to the interest expenses, you get deductions for any bank charges.
Interest deduction for other types of home loans
If you take a loan in order to buy a summer house or other leisure property, the interest expenses for it are non-deductible. In tax assessment, this loan is treated as consumer borrowing, or "other loan".
If a child or a grandparent lives in a home you have bought with a loan, and you let them live rent-free or on a below-market rent, the interest expenses related to the property are non-deductible. In tax assessment, this loan is treated as consumer borrowing, or "other loan".
A typical part-time arrangement involves a summer home used by the family during a certain season only, and rented out to tenants for the remainder of the year.
In tax assessment, the purpose of any loan taken for the leisure property will be split accordingly
- for the months when the summer home is rented out: the loan purpose is for the production of income, and
- for the months of own-family use: the loan purpose is consumer borrowing.
The deductibility of interest expenses depends on what the loan’s purpose is.
Ownership of a fraction
You may also purchase only a part of a residential property (a fraction). You may have signed a contract that enables you to pay for a part of the price of the home yourself while the remainder is financed by a loan taken by the housing company or by other means.
You can only deduct the interest expenses that relate to your personal loan. In other words, you cannot get deductions for the monthly payments to the housing company that are partly intended to cover the interest payments on a loan taken by the housing company.
This is an arrangement involving the purchase of a fraction of the shares.
If you have borrowed money in order to finance your part of the shared ownership, you can deduct your interest expenses. However, you cannot deduct interest expenses that are included in your rent.
The form of residence known as right-of-occupancy involves an initial payment to receive the right to live in the apartment, and further regular maintenance charges payable to the association.
If you have borrowed money for paying the initial payment for a right-of-occupancy contract, you can deduct your interest expenses.
Expenses for major repairs in your permanent home
You are entitled to deductions for the interest on a loan taken for major repairs. This deduction is similar to deductions on usual home-loan interest expenses. In 2019, you can deduct 25% of the interest (in 2018, the deduction was 35%).
If you live in a housing company and the loan for financing the repairs was taken by the housing company and not by you, the interest expense is included in the monthly maintenance charge you pay to the housing company, and you cannot deduct it. However, if you borrow money as a private debtor to pay off your personal share of the housing company’s repair cost, or to pay off your share of a loan that the housing company has taken, you can deduct the interest expenses.
If you borrow money from the bank as a private loan client to pay off your personal share of the housing company’s repair cost or your share of a loan that the housing company has taken, you can deduct the interest expenses.
If you borrow money to finance some annual repairs in your home, you cannot get deductions. Examples of annual repairs include indoor painting, wallpapering, and replacement of kitchen appliances and fittings where the overall technical standard of the kitchen remains the same as before.
Government-subsidised loan (Arava)
If you had taken a loan within the Arava scheme, the interest expenses are not deductible.
How does this affect my tax assessment?
The deduction is primarily made from capital income, such as dividends or rental income. If you have no such income, there will be a credit from your earned-income taxes amounting to 30% of the qualifying interest expenses. Earned income includes wages, pensions and social benefits received from Kela, the Social Insurance Institution of Finland.
If you don't have any capital income, the credit is given against earned-income taxation (including the taxes on your wages) in the form of a "tax credit for a deficit in capital income". The maximum credit is €1,400 a year. For couples, it is €2,800 per year.
The maximum credit is raised by a further €400 if you have a child under 18 years, and by €800 if you have two or more children under 18 years.
Example: Spouses with two children have paid €2,000 in home loan interest in the course of the year. The deductible part of this expense is €700 (= €2,000 × 35%). The spouses have no capital income. As a result, the Tax Administration will grant them credit for a deficit in capital income against their earned-income taxes. 30% of the paid interest expense is deducted – in this case, the credit equals €210 (€700 × 30%).
Example: Two spouses who have two children may be given a 30-percent credit for their deficit in capital income, reducing their taxes on earned income, the maximum amount being €3,600 per year. This requires that neither one of the two spouses has any capital income and that their home-loan interest expense reaches €27,000 (because 35% of €27,000 is €9,450 and 30% of that equals €2,835).
Report your interest expenses to the Tax Administration
Interest payments on a home loan can be included in the calculation of the withholding rate marked on your tax card.
Your bank informs the Tax Administration on your interest expenses. The expenses show on your pre-completed tax return
Your bank gives the Tax Administration information on your loan and its interest expenses. This information is transferred to your pre-completed tax return.
Check the amounts and the purpose of the loan
If the loan purpose is not stated correctly in your tax return, fill in the loan’s correct purpose and the bank's code number of the loan in the additional information section.