In recent years the rules regarding the mortgage interest deduction have changed a number of times. In this article you therefore read what exactly the maximum mortgage interest deduction entails and how this works.
Mortgage interest deduction rules
What is mortgage interest deduction? This is the tax benefit that you receive by deducting the mortgage interest from the taxable income in box 1. Every year you report the paid mortgage interest to the Tax Authorities, which deducts this amount from your taxable income from, for example, wages. This means you pay tax on a lower income. But since most of this tax has already been deducted from your wage, this deduction means that in most cases you will receive a refund from the tax authorities.
Maximum mortgage interest deduction – Tax brackets
In box 1 there are 4 tax brackets, each representing a certain income and a tax rate that you pay on this part of your income. The mortgage interest is deducted from the highest part of your income. The mortgage interest is deducted from the highest part of your income. An exception applies to the highest tax bracket. The mortgage interest deduction is limited every year. In 2019, you may still deduct your mortgage interest at a maximum of 49 percent. So if you fall in the highest tax bracket with your income, you pay 51.75 percent tax, but you can only deduct the mortgage interest against 49 percent.
Mortgage interest deduction 30 years
In addition to the tax rate, a maximum number of years applies to the mortgage interest deduction. You are entitled to a 30-year mortgage interest deduction per mortgage loan, provided you meet the conditions. These include, for example, that the mortgage interest deduction only applies to your principal residence. New mortgages are also only eligible if they are repaid in an annuity or on a straight-line basis. In principle, banks always work with a maximum term of 30 years for mortgages, so in most cases this limit is no problem.
But mortgages taken out before January 1, 2013, often contain an interest-only portion that is not repaid within 30 years. Nevertheless, the mortgage interest deduction stops after 30 years.
Please note: The maximum mortgage interest deduction in years applies per mortgage loan. So if, for example, you take out an extra mortgage 10 years after taking out the mortgage for a major renovation, this part of the mortgage again applies a term of 30 years.