Loans are popular in Switzerland. One in three people have or have had a loan. Many borrowers do not know that debt interest from private loans is deductible and reduces the tax burden. At the same time their deductibility is particularly generous and conceivably simply arranged. But not every interest payable falls under this. Learn how to reduce your tax burden and where the limits are.
What is debt interest?
A sports car, the long-awaited TV in oversize or the high back tax payment-Causes are many to take out a loan. In addition to the low-interest period, the tax deduction of debt interest supports the borrower. Recognized in Tax Abatement Ordinance 642.11 are interest rates for secured and unsecured loans (mortgages and personal loans, small loans, etc.).). Also includes debt interest from credit card transactions or private loan agreements, such as between family members or friends.
Tip: The deductible interest does not necessarily correspond to your loan installments. In addition to the interest portion, this usually includes a repayment portion. The following applies: only interest is tax-deductible. As their share becomes smaller and smaller with ongoing repayment, the debt interest deduction is reduced over the term of the loan.
The decisive factor is not who pays the interest, but only who is the debtor.
Is the tax deduction worth it?
What many borrowers don't know:
- Debt interest is not only tax deductible for homeowners, but also for private borrowers
- They are deductible for both direct federal tax and cantonal income tax purposes
- Loan interest is deductible up to the amount of the gross income from private assets plus an allowance of CHF 50,000
This is worthwhile: For example, you take out a personal loan of CHF 20,000 with a term of 3 years. In the first year, an interest expense of approx. 1 500 CHF will be incurred. With the average tax rate of 29% of a natural person in Switzerland, a tax saving of CHF 435 would be achievable.
Which debt interest is recognized by the tax authorities?
Not every interest claim is tax deductible. You can see which debt interest the cantonal tax authorities recognize as deductible here:
Current account interest
You can claim your current account interest for tax purposes.
Building loan interest
Construction loan interest is deductible as debt interest from the beginning of the use of the property. Prior to this, it is a non-deductible value-adding expense or investment cost.
Private loan interest
Private loan interest is also deductible under the heading of debt interest. Provided you can prove this by means of a loan agreement and payment receipts.
Interest on arrears of federal or cantonal taxes is deductible as debt interest. If you have to pay back taxes, you can also deduct interest on arrears for this.
The tax period in which the additional payment was imposed on you is decisive.
If you pay off a mortgage early, your bank may charge an early repayment fee. This is how the institution determines the lost interest. A charge that can be considerable depending on the amount of the outstanding debt.
Since 2020, the prepayment penalty has been recognized as part of the debt interest deduction. The condition is that you replace the redeemed mortgage with a new mortgage with the same lender.
The amount charged is not deductible if you only partially repay the mortgage or reschedule it with another bank.
If the prepayment penalty is incurred because of a property sale, it is not to be reported as part of the debt interest. In this case, it can be investment costs for the real estate gains tax. Ask your tax advisor about this.
Costs for the conversion of debt certificates such as land registration and notarization fees are also deductible. Commissions, expenses or fees paid to brokerage platforms also reduce your tax burden.
Private leasing interest is not deductible, as leasing is considered rent for tax purposes. It doesn't help if the company confirms the debt interest to you either.
If your bank charges you fees for a mortgage (initial or follow-up financing), they are not deductible. Neither as debt interest nor as securities management expenses.
Negative interest does not fall into the category of debt interest, as it is calculated on credit balances. However, they can be claimed as asset management expenses. Ask your tax advisor about this.
How to claim a tax deduction?
This is how the cantonal tax authorities recognize your debt interest:
- At the beginning of the year, you will receive an interest certificate from your bank for the loan. If financial statement documents are missing, request them from your account-holding institution.
- You enter deductible debt interest in your tax return. They belong, including the residual debt, in the "list of debts" under "private debts".
- Attach a copy of the interest certificate to your tax return. For private loans, include copies of the loan agreement and transfer confirmations or. Of the cash receipts for this.
Conclusion: debt interest reduces your tax burden
As a borrower, you can quickly and easily reduce your tax burden via debt interest. But not every form of credit is deductible. Among other things, you cannot claim the leasing interest for tax purposes. It is therefore advisable to weigh up whether you lease a vehicle or acquire it via an installment loan. Interest from private loan transactions, on the other hand, can be deducted. Provided you provide evidence of the loan agreement and the interest payments made.
The small expense is worth it. Therefore, do not neglect to declare your loan interest in your tax return. Due to the high tax-free allowance of CHF 50,000, you can often deduct the entire interest expense for one or more loans.