Deduct financing costs related to a loan for primary residence
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Taxpayers who take out a housing loan for the acquisition or construction of their primary residence may deduct the loan financing costs from their income. The interest expense related to the loan falls within these costs, which are also known as acquisition costs.
The property may be located in Luxembourg or abroad.
Who is concerned
Taxpayers, be they residents or assimilated non-residents, may deduct the interest expense related to a home loan for the acquisition or construction of a home from their taxes through their income tax return.
This deduction applies only to the taxpayer's principal dwelling. Interest expenses in relation to a secondary dwelling are, in principle, not deductible.
Prerequisites
Non-resident taxpayers, provided they are eligible, must choose to be taxed as resident taxpayers in order to be able to deduct their interest expenses.
How to proceed
Period before the occupation of the dwelling
Interest paid (minus any interest subsidy or interest relief) is fully deductible while the home is not available to the owner (occupied or continuously available).
Financing costs such as the single premium, the deed for the mandatory mortgage and the administrative charges can also be deducted as acquisition costs, if they apply to the period prior to the occupation of the dwelling and that the construction or purchase of the dwelling have entered into an active (concrete) phase.
Period from the occupation of the dwelling onwards
From the moment of the occupation of the dwelling, the interest paid (minus any interest subsidy or interest relief) is deductible up to a certain maximum amount.
Unit value and rental value of real estate
Determining the unit value
The Real Estate Valuation Section (Section des évaluations immobilières - SEVI) of the Luxembourg Inland Revenue (Administration des contributions directes - ACD) always fixes the unit value of properties located in Luxembourg. It serves as a tax base for setting the Luxembourg property tax.
The unit value is based on the 1941 price level. The unit value is therefore lower than the property asset’s actual value.
The unit value is communicated to the taxpayer when the home is purchased or completed, and indicated on the property tax form.
Determining the rental value as of 2017
For the sake of simplification, the rental value has been reduced to EUR 0 for the main or secondary dwelling from the fiscal year 2017 onward.
Determining the rental value before 2017
Until the fiscal year 2016 included, the taxpayer had to declare the unit value as well as the rental value of his dwelling. The dwelling occupied by a right of possession was taxable, and the fictitious income taken into account was that of the rental value.
The rental value of the property was fixed at:
- 4 % of the unit values less than or equal to EUR 3,800;
- 6 % for unit values greater than EUR 3,800.
The rental value of a house located abroad was set at a flat rate of EUR 100 (and based on an estimated unit value of EUR 2,500).
Example 1: Calculation of the annual rental value of an apartment located in Luxembourg:
Unit value fixed at: EUR 4,500
4 % of EUR 3,800 = EUR 152
6 % of (4,500 - 3,800 =) EUR 700 = EUR 42
Rental value: 152 + 42 = EUR 194
If the dwelling was not occupied from 1 January to 31 December by the taxpayer, the rental value was calculated in proportion to the period of occupation.
Example 2: Calculation of the rental value of an apartment located in Luxembourg and occupied from 1 September to 31 December
Annual rental value taken from example 1: EUR 194
Partial rental value: EUR 194 x 4/12 = EUR 64.67
If the taxpayer did not know the unit value at the time of completing his return, it was determined by the ACD who took it into account in calculating the net income.
Maximum amount of the deduction
As of the fiscal year 2017, the deduction of interest expenses cannot exceed the following annual limits:
- EUR 2,000 for the first year of occupancy and for each of the following 5 years;
- EUR 1,500 for each of the next 5 years;
- EUR 1,000 for each year thereafter.
Up to and including the taxation year 2016, the annual limits were set as follows:
- EUR 1,500 for the first year of occupancy and for each of the following 5 years;
- EUR 1,125 for each of the next 5 years;
- EUR 750 for each year thereafter.
These annual limits are increased by their own amount for the spouse or partner, if the spouses or partners are taxed collectively, as well as for each child giving rise to a tax relief.
Example for the 2017 fiscal year of a couple changing their main residence:
A married couple, A and B, collectively taxable, occupy their house M as a main residence for 10 years, along with their 2 children who are entitled to a tax reduction.
The annual deductible interest expense deductible for their house M is 4 x EUR 1,000, or EUR 4,000 per year (occupation phase of the former main residence).
A and B buy a new property N in May, and it is is continuously available to them as of June.
A and B can deduct all their interest paid in May for their new property N (vacancy phase of the new main residence).
They will be entitled to an additional ceiling for their new house N of 4 x EUR 2,000, or EUR 8,000 for interest paid from June to December (occupation phase of the new main residence).
The deductible interest expense ceiling is not affected by the occupancy period.
Deduction of interest on loans
The taxpayer must indicate the following details in the net income from the rental of property category of his tax return (form 100) on page 10, boxes 1033 to 1061:
- the name of their bank;
- the economic relationship and the amount of the debt;
- interest paid;
- where applicable, the subsidy or relief received.
Interest subsidies granted by the State reduce the interest burden on the beneficiary.
Supporting documents
In order to justify their interest expense, the taxpayer may attach to their tax return a copy of the annual account statement, including all of their interest paid and interest subsidies or interest relief received.
The Luxembourg Inland Revenue reserves the right to request additional supporting documents as part of the process of verifying any information, statements, applications, declarations, claims or appeals submitted to its offices.
Who to contact
-
Luxembourg Inland Revenue (ACD)
- Address:
- 33, rue de Gasperich L-5826 Hesperange Luxembourg
Please click on the link above to find the competent department.
Related procedures and links
Procedures
Links
Further information
-
Valeur unitaire d'une propriété immobilière
sur le site de l'Administration des contributions directes (ACD)
-
Habitation personnelle du propriétaire
sur le site de l'Administration des contributions directes (ACD)
Legal references
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Loi modifiée du 4 décembre 1967
concernant l'impôt sur le revenu
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Règlement grand-ducal modifié du 12 juillet 1968
concernant la fixation de la valeur locative de l'habitation occupée en vertu du droit de propriété ou occupée à titre gratuit ou en vertu d'un droit de jouissance viager ou légal
-
Circulaire LIR n°98/2 du 31 octobre 2017
Fixation de la valeur locative forfaitaire des habitations par application du règlement grand-ducal modifié du 12 juillet 1968
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Circulaire LIR n°105/8 - 98/1 du 31 octobre 2017
Aspects de la détermination du revenu net provenant de la location de biens immobiliers bâtis faisant partie du patrimoine privé
