Loan interest

Czech Republic: How to properly reduce one’s tax base using loan interest

Tax payers who make use of a loan under a contract with a building loan society or a mortgage-backed bank loan to finance their personal housing needs are entitled, under the Czech Income Tax Act, to deduce the interest paid on such loans from their tax base. They may either perform this deduction themselves (if they file their own income tax return), or go through their employer, as a part of the annual adjustment of income tax (wage tax).

The aggregate amount of interest paid on all housing-related loans which may be deducted by taxpayers who live in a joint household is capped at CZK 300 000. In the first year in which the owner (employee) claims a reduction of the tax base, they must submit documentation such as the loan agreement, the building permit (in the case of a newly built apartment or house), an extract from the cadastral register (in the case of a purchase of land/apartment/house, or in the case of refurbishment work on an apartment/house, or if changes have been made compared to the building permit), the lease agreement (in the case of a rental apartment), or proof of permanent residence (if the relevant apartment is used on the basis of another title). In each subsequent year, the finance office requires documentation (e.g. in the form of a confirmation by the bank) regarding the eligible interest payments for the preceding calendar year. If changes occur, then the employee must submit new documentation to substantiate their claim for curtailment of the tax base.

If the claim for reduction of the tax base has been made through the employer and it is then found that interest was deducted without justification (for instance because the employee had not in fact been the owner of the residential property throughout the entire assessment period), then the employer may, for up to 12 months from the annual adjustment of income tax (wage tax), withhold the difference from the employee’s salary, irrespective of who was responsible for the mistake. After this 12-month period has lapsed (and for at most three years), the employee may only be asked to surrender the difference if it was the employee who caused the mistake (e.g. because of false reporting). In any case, and irrespective of culpability, a corrective (supplementary) tax return must be filed for the year in which the tax base was unduly curtailed by making the unjustified deduction.

Hírlevélre feliratkozás

A 'Feliratkozás' gomb megnyomásával elfogadja az adatkezelési szabályzatunkat