Currently, there are many financial stresses, due to unforeseen events such as job loss, health problems, accident or death of family members, etc. Such charges can be a significant financial burden that comes with high interest rates that apply to loans.
However, there is good news: loan interest incurred due to extraordinary burdens can be deducted as such in the income tax return. This includes not only interest on bank loans, but also when private loans are taken out in order to cope with such a financial burden.
However, the tax office does not take all loan interest into account. The recognition of loan interest as an extraordinary burden requires that the burden is indeed extraordinary and, moreover, not to be borne by the general public. The tax offices examine very closely the extent to which the financial burden can be classified as unavoidable and unforeseeable.
In order to find out whether and to what extent loan interest can be claimed as an extraordinary expense, it is advisable to seek advice from a tax specialist. A close examination of the circumstances of your financial burdens and borrowings can help reduce your tax burden.
Deductibility of loan interest for extraordinary expenses
The deductibility of loan interest for extraordinary expenses is important for many people. Who can deduct their loan interest and to what extent?? In Germany, the general rule is that interest on private loans is not tax-deductible.
There are, however, exceptions: If the borrowing is due to “extraordinary burdens” results, such as an expensive medical treatment or an expensive divorce, the loan interest can be claimed against tax to a certain extent.
The exact rules for the deductibility of loan interest for extraordinary expenses are complex and may vary depending on the individual situation. However, it is worthwhile in any case to examine the possibilities for tax relief through loan interest deduction in order to achieve a saving if necessary.
- Deductibility of loan interest for extraordinary burdens
- Complex regulations
- No deductibility of loan interest for private loans
- Exception for extraordinary burdens
Deductibility of loan interest for extraordinary burdens
Those who suffer from extraordinary burdens often have to bear additional financial expenses. These include additional medical and therapy costs, costs for an apartment suitable for the disabled or for an expensive caregiver. To alleviate these burdens, in many cases the costs can be deducted for tax purposes.
Particularly in the case of larger purchases or loan-financed measures, it can be worthwhile to claim the loan interest incurred as an extraordinary expense in the tax return. Whether this interest is deductible, however, depends on certain criteria.
- Reasonableness: The amount of interest must be reasonable and may not exceed the market rate.
- Context: The loan interest must be directly related to the extraordinary expenses.
- Evidence: The costs and interest must be able to be proven to the tax office.
In order to ensure a successful tax return, care should therefore be taken when taking out a loan to ensure that the interest is appropriate and that a corresponding obligation to provide evidence can be met later on.
Overall, extraordinary expenses can only be deducted as an extraordinary burden up to the amount of the subsistence minimum. The rule of thumb is: the higher the income, the lower the proportion of deductible charges.
It is therefore advisable to obtain precise information in advance and, if necessary, to consult a tax advisor in order not to overlook any important details and to take advantage of the maximum tax savings potential.
Which loan interest can be deducted?
Loan interest can be deducted as extraordinary expenses under certain circumstances. However, certain conditions must be met. For example, the loan interest must have become necessary in order to finance a measure to secure a livelihood.
Another requirement is that there is no other way to finance the measure. The charge must therefore be unforeseeable and not the fault of the borrower. If this is the case, the loan interest can be claimed for tax purposes.
It is important to note that only the interest actually paid can be taken into account. If, for example, the bank has charged a processing fee, this cannot be deducted. The amount of deductible loan interest is also limited and should be calculated by a tax advisor if in doubt.
- Loan interest can be deducted as an extraordinary expense if it was necessary to finance a measure to secure one’s livelihood.
- Only interest actually paid is deductible and the burden must not be foreseeable or indebted.
- The amount of deductible loan interest is limited and should be calculated by a tax advisor in case of doubt.
Expenses that can be deducted as extraordinary expenses
The deductibility of extraordinary burdens is an important issue for taxpayers. In addition to medical expenses and catastrophic damage, interest on loans can also be declared as extraordinary expenses on the tax return.
This is interest that has been incurred as part of an extraordinary burden. This may be the case, for example, if a loan had to be taken out due to illness or another serious situation.
- However, the loan interest must have a temporal connection with the extraordinary burden.
- In addition, they must have been reasonable and necessary.
It is also important that the amount of deductible loan interest is limited. Only the interest that was necessary to finance the extraordinary burden can be deducted. In addition, the amount of extraordinary expenses must exceed a certain percentage of the total amount of the taxpayer’s income.
Overall, it is important to seek professional advice when declaring extraordinary expenses and loan interest on your tax return. The exact rules can be complex and it is advisable to consult a tax advisor.