Interest deduction for loans

If you have loans and other credits, you can deduct 30% of your interest expenses in the declaration, which means you have to pay less in tax. However, all credit rates are not deductible, so Best Bank should show you which ones are and which ones are not.


Deductible interest rates

interest rates

  • All types of private loans have deductible interest rates, so this also applies to fast loans / sms loans.
  • Credits, such as interest on credit cards, debit cards and credit cards, are also deductible.
  • Loans with collateral, such as mortgages and vehicle loans that require collateral, can also be deducted.

Interest and credit costs that must not be deducted

  • Interest on student loans.
  • Administrative fees for loans and credits, such as newspaper fees, setup fees and application fees. These items are by definition no interest because they are about fees.


This is how interest deductions for loans work

This is how interest deductions for loans work

Best Bank should give you an example that illustrates how important the interest deductions for your loans can be when it comes to your taxes and ultimately also to your finances. Although in the example we write about mortgages, the principle is the same for all types of loans.

  1. Suppose you have a mortgage loan of about $ 3 million and pay an average of $ 5800 / month in interest costs.
  2. $ 5800 a month will be $ 69,600 in interest expense in one year.
  3. 30% of 69,600 will be $ 20,800 and that is how much you can deduct in the tax return, which means that you have earned $ 20,800 tax-free during the year due to the deduction. For example, if you have an annual salary of $ 370,800, you only estimate $ 350,000 instead. Of course you end up taxing even less because of the job tax deduction and other possible deductions, but it has nothing to do with your loan interest rate.


You must have a taxable income or profit

You must have a taxable income or profit

If you have no taxable income or profit, you cannot use the interest deduction as there is then no tax to deduct 30% of the interest. Now, most people usually have some type of taxable income, such as income from service, A-cash, parental benefit or sickness benefit, so this should not be a problem. Otherwise, there are several other items you can deduct from the interest rate:

  • Profit in individual company. You can also offset 30% of your interest costs against income tax and this applies even if you have an individual company because it is not a legal person. You can thus deduct your private interest costs from your business profits if you are an individual trader.
  • If you save money in a savings account, you must tax 30% on the interest money you receive and this is offset against your interest deduction.
  • If you save in funds and pick out profits, you have to pay 30% in profits tax on the profits, this is also offset against the interest deduction.


About setting off interest rates

About setting off interest rates

With this simple example, we will explain how to set interest rates off against each other.

  • Suppose that, as in the example above, you can make an interest deduction of $ 20,800.
  • Suppose you have a savings account that has given you a return and has sold shares with a profit, and the total profit and interest rate return was $ 5000.
  • You can pay 30% in profit tax on these $ 5000 and it will be $ 1500 in profit tax.
  • Now the income tax is offset against the interest deduction, which will be $ 19,300 ($ 20,800 – 1,500).
  • In the end, you can deduct $ 19,300 from your annual income, which means that $ 19,300 of your annual income is tax-free money.

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