Partially rented property deductibility of interest

Hello,

I am in the process of purchasing a two-family house. I have already secured the financing. Unfortunately, I was not informed about various special features in such a case. As I have learned, it would have been advisable to take out two loans, one for the rented part of the property (40% living space) and one for the part used by myself (60% living space), for which I should have used my own funds. In total, I am borrowing €400,000 and have an equity share of €120,000. How would the deductibility of the interest / depreciation be? Would 40% automatically be deductible (i.e. €208,000) or nothing at all?

The notary contract has not yet been signed and can still be adjusted. I have considered having the contract drafted so that it states that the rented property is paid with €250,000 (realistic share) from the external financing and €270,000 (€150,000 from a loan) is paid, so that about 48% would be deductible.

Is this possible?

Thank you and best regards

Don't think that is possible. If there are not 2 loans, the tax office allocates according to living area.

You cannot deduct the entire or partial loan amount, but besides the notary fees, only the interest on the financing. For €400,000 at 2.5%, that would be €10,000 per year. 40% of that would be €4,000. This then has to be offset against the rental income, provided you can still deduct it. I would use a tax advisor for the first year. They can calculate it. I would then use that as a template for the following years.

If there is still the possibility to split the loan, I would do it. Many banks are also lenient and offer to make the interest rate for the rented part slightly higher and reduce it for the owner-occupied part. It is important that the loan agreement then also states the respective part of the house as the purpose of use. Not many banks do this, but there are definitely some that offer it. This way, you can make the whole thing a bit more attractive from a tax perspective.

Ideally, one would probably subdivide and create a land register for each residential unit. But organizing that also costs a few euros.

Morning,

for legally secure answers, I would ask a tax advisor here. Therefore, the answers here can be taken as "orientation," but whether the tax office will ultimately recognize it 100% is another matter.

and yes, if you buy a two-family house, then you make 2 components out of it (which I like to do with my clients) and then it looks like this: - rented unit: financed 100%, if possible with 1% repayment (interest is tax-deductible) - owner-occupied unit: here the entire equity flows, very high repayment so that it is paid off quickly (interest cannot be deducted!) (ok, the ancillary purchase costs are paid from equity) this way you always have the exact costs for the interest for the tax return (annual bank statement)

I would first recommend here to ask if the bank can split the existing loan into 2 parts (and also consider the repayment accordingly, minimum repayment on the rented part, high repayment on the owner-occupied part). Some banks have no problem with this, but then charge 500-750€ fees for loan amendment (the collateral/creditworthiness remains the same, the old contract is just to be split into 2 contracts) that would be the cleanest solution.

otherwise, with the notary, you should primarily split the purchase price as follows: - land share (VALUE!) example house bought for 400k, land is worth 100k! - then split the house share accordingly also to residential unit A and B (because of depreciation) definitely do that.

and if only one contract remains with the financing, then ask a tax advisor or the tax office how to best consider it "tax-wise."

PS. Did you do the financing directly at the bank or where? Why didn’t the advisor directly suggest splitting it like this instead of taking one component? For me, something like this also belongs to good advice. I know many "bankers" who address this directly in the branch and take it into account accordingly in the financing.