Construction loan interest
May 28, 2015 | 30,00 EUR | answered by StB Patrick Färber
Hello,
the construction of a single-family house, which is intended to be rented out after completion, is being financed entirely (including the purchase of the property) through a loan. Completion and start of the rental should be on 01.01.16.
From the taxes on rental income from 2016 onwards, both the loan interest due at that time and the depreciation of the production costs can be deducted.
From my own research, I know that the loan interest during the construction of the house (so-called construction period interest) can either be claimed in advance or later be added to the production costs and then taken into account in the depreciation.
Is there an option to choose from, and what is more sensible?
At present, I have no income from renting/leasing, but only from non-self-employed employment.
Thank you.
Dear questioner,
I understand your inquiry to be about how you can claim loan interest as a tax deduction.
In your case, the loan interest, if paid during the construction period, is clearly considered as pre-incurred advertising costs related to a future source of income from property and capital investments.
It is not correct, in my opinion, that loan interest is later included in acquisition costs and claimed through depreciation. Loan interest should be seen as separate from acquisition costs and immediately deductible as advertising costs. They do not lead to production costs, which are only tax-effective over the depreciation period. Therefore, there is no choice. It is more tax-efficient to deduct them as advertising costs.
Therefore, from the time of payment, you should include the paid interest in your tax return in Appendix V as advertising costs (attach interest certificate). It is best to explain in an attachment that you are building a property and intend to rent it out to third parties from the tax assessment year 2016 onwards. From then on, you can also claim depreciation.
I hope this information helps! Best regards,
Tax Consultant Patrick Färber
