What are the examples of financing costs

Financing costs

Definition: what are financing costs?

All expenses incurred in the course of obtaining a loan are referred to as financing costs. For example, this includes agency commissions, interest, processing fees, disago (discount) as well as notary costs for land register entries in the case of collateralization by mortgage or land charge.

Table of Contents

  • Are financing costs tax deductible?
  • Can the financing costs for a property be deducted?
  • Can the borrowing costs of a student loan be deducted?
  • Can Car Loan Costs Be Deductible?
  • Which financing costs can be deducted?
  • Can the costs for a vacant lot be deducted?

Are financing costs tax deductible?

According to Section 9 (1) EStG, financing costs are immediately deductible as business expenses or operating expenses and reduce the taxable profit in the year in which they arise - if there is a direct economic connection with the generation of income, for example if a new company car is wholly or partially based on a loan is financed. But real estate financing for a rental property or a training loan are also possible.

Loan interest is immediately deductible as financing costs in the respective assessment period. Financing costs are not directly deductible if these are borne by the seller by the buyer of an asset. In this case, these are treated like acquisition costs (e.g. interest on existing loans when buying a property).

Can the financing costs for a property be deducted?

Whether or not the cost of a loan to finance a property can be deducted depends primarily on the use of the property:

Privately used condominium

The interest is not deductible if a home is financed by a loan for exclusively private use. In this case, these are non-deductible expenses related to private life.

Financing an apartment within the framework of double housekeeping

If an employee's home is too far away from their first place of work, they can deduct the costs of running a double household for tax purposes. This also applies to the interest if an apartment is bought or, for example, a fitted kitchen for rented accommodation has to be financed through a loan.

Fully rented property

If the property is rented out in full, the full amount of the financing costs can be deducted from income-related expenses. They reduce rental and leasing income.

Financing a mixed-use property

If a property is used privately and only partially let, only the part of the financing costs that relates to the rented part can be deducted. A typical example of mixed-use buildings are single-family houses in which a granny flat is rented in the basement.

In the case of mixed use, the costs must be divided according to the area ratio (judgment of the BFH of June 24, 2008, Az. IX R 26/06).

Example: In a single-family house with a total living space of 250 m², a granny flat with an area of ​​75 m² is rented. The rented part corresponds to a usage share of 30 percent. This means that 30 percent of the costs can be deducted from taxes.

No division by area is necessary if the borrowed funds can be clearly assigned to the rented part of the apartment. This can be achieved, for example, by posting everything separately for the two areas of the property (e.g. separate purchase and loan contracts, separate accounts, split tradesman's bills).

Can the borrowing costs of a student loan be deducted?

If a degree is financed by a student loan, the financing costs can be deducted from tax:

  • Bachelor's degree: For the first degree, interest up to a maximum of 6,000 euros per year can be set as special expenses (Section 10 (1) No. 7 EStG), but only in the year in which it arises.
  • Master’s degree: Since the master’s degree is a second training course, there is no limit to the financing costs that can be set as income-related expenses (Section 9 (6) EStG). A loss carryforward into later tax years is also possible.

Can Car Loan Costs Be Deductible?

The cost of financing a vehicle can only be deducted from tax if it is used professionally or for business purposes. However, using it to drive to work is not sufficient. The taxpayer has the choice whether he wants to set a flat rate of 0.30 euros per kilometer or the actual costs. In the latter case, he can also take into account the financing costs.

Note: If the vehicle is also used privately, the costs can only be stated proportionally in the tax return in relation to the professional use.

Which financing costs can be deducted?

The financing costs include all costs associated with the procurement of external funds:

  • Debt interest (Section 9 Paragraph 1 Sentence 3 No. 1 EStG)
  • Discount
  • commission
  • Administration and processing fees
  • Commitment interest
  • Rescheduling costs
  • Notary and court fees
  • Fees in connection with a building society loan agreement
  • Legal advice costs

In the case of Damnum, discount and processing fees, the 5-year period must be observed:

Loan term Customary market feesDeductibility of financing costs
<5 years-Yes
> 5 yearsYesYes
> 5 yearsNoDistribution of costs over the loan term in accordance with Section 11 (2) sentence 3 EStG

 

 

 

 

 

It is assumed that a Damnum is "customary in the market" if it is up to 5 percent on a five-year loan (BMF letter of October 20, 2003, Federal Tax Gazette I 2003).

Can the costs for a vacant lot be deducted?

If a vacant lot is financed with a loan, the costs are only deductible if the buyer has a specific intention to build a rental property.

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