Whether it is a lack of knowledge or a deliberate setup of events. Deduction the mortgage costs of a house that is not your main residence, that is not possible. This the couple in the example in this article gave it a try.
Mortgage costs deduction
In the Netherlands the Government offers the possibility to deduct the costs related to the loan taken out to purchase your house. Often this loan is a mortgage, hence the name mortgage deduction. Also the costs of a loan taken out for certain refurbishments or improvements of the house are deductible.
The costs you make for refurbishments or renovation itself are not deductible.; Only the costs of the loan taken out, is tax deductible.
The condition for this deduction, or subsidy as the European Union addresses it, is that the house is your main residence. You own and live in the house. If you own together with your child the house and your child is living in the house, 50% can be deducted by the child. You, the parent, can deduct nothing. It is not your main residence. You need to report your 50% of the house in Box 3.
If you divorce, there are alternative rules that make for a limited period of time one of the partners can deduct all costs, or each 50%. The total of deduction is then still 100%.
Example – court case
A couple owns in 2009 a house. They leave to house to live in another house. The other house was not owned, either rented or living with friends/family. Later in 2009 a monument building was purchased.
In those years the maintenance costs and an amount of amortization could be deducted in the income tax return. In 2011 the couple moved into this monument building house.
The house the couple owned already in 2009, in which they no longer lived since 2009, was put up for sale in 2011. Those were the days it could take a couple of years before you sold the house, believe it or not. The mortgage interest rate around that time was about 5%. To put in perspective the silliness of the court case.
In the tax year of 2014 the house was not yet sold, hence the mortgage costs of that house were deducted. And EUR 4.975 maintenance costs of the monument building was being deducted.
Tax assessment
The 2014 income tax return, as described above, was accepted without any questions. However, the couple argued the 2015 tax assessment over a EUR 781 penalty. The tax office investigated the matter. In order to do so, they had to look into the history. Also into the year 2014. Then it came to light certain aspects that were not correct.
In the 2014 tax return mortgage interest was deducted of a house that since 2009 had not been their main residence. They took up residence elsewhere before it was put up for sale many years later.
The EUR 4.975 monument maintenance costs were not maintenance costs but electricity costs. Deducted upon advise of the tax advisor.
The tax office decided on the 2015 argument that the penalty was correct, would remain EUR 781. In addition the 2014 mortgage costs for the house for sale was dismissed. For the EUR 4.975 a warning was given, based on the incorrect advise. The deduction remained.
Appeal in court
The couple disagreed with the tax inspector 2014 increased assessment as the tax office could not impose this extra tax without probable cause. The 2014 tax return was automatically accepted, now that cannot be changed without a cause.
The court fully agreed with the tax inspector. The 2014 mortgage interest for the house for sale is not tax deductible. Moreover, the court ruled that the EUR 4.975 electricity costs that were presented as monument maintenance costs, was rejected as well.
There was no need for probably cause as the 2014 assessment was accepted based on the assumption it was correct. It was never actually examined. This was the first time the tax return was examined, hence no new probable cause required was applicable.
The 2015 initial argument was granted to the couple. The penalty was reduced from EUR 781 to EUR 343.
Appeal backfired
The couple argued over EUR 781. In the end it cost them the mortgage deduction for one house and EUR 4.975 maintenance deduction. You have to chose your battles well. Going to the high court over a EUR 781 fine is too much of a burden on the costs of society, is my opinion.
Tax is exciting
We think tax is exciting. Getting a tax assessment that is different than the outcome it not exciting. If more tax is to be paid, that is. We can assist you with the appeal. And if we believe the appeal was denied for the incorrect reasons, we will be please to go to court with you. All in perspective of the amounts applicable.
