Buying a house is an important step in the life of many people and, often, to face this investment, one resorts to a mortgage loan. One of the most frequently asked questions concerns the possibility of deducting passive interests from Irpef.
In this article we will clarify how the deduction of passive interests works when the amount of the mortgage exceeds the cost of the house and what are the limits imposed by tax legislation.
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The reader’s question to the Revenue Agency
A reader asked the Revenue Agency the following question:
“I will soon get a mortgage from a bank that will be used to purchase my main residence. Since, at my request, the amount that will be granted to me is greater than the cost of the house, is it true that the passive interests that I will pay are not fully deductible from Irpef? How are they calculated in these cases?”
The Revenue Agency responded by clarifying the rules regarding the deductibility of passive interests on mortgages when the financed amount is higher than the cost of the property. Let’s look at the details together.
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Introduction to the deduction of passive interest on mortgages
Italian tax law provides that for mortgage loans taken out for the purchase of a primary residence, it is possible to benefit from a tax deduction on passive interests and related accessory charges. This deduction is equal to 19% of the expenses incurred, up to a maximum of 4,000 euros per year.
But what happens if the amount of the mortgage requested is higher than the actual cost of the property? Are you still entitled to the full deduction?
According to article 15, paragraph 1, letter b, of the Consolidated Law on Income Tax (TUIR), the deduction of passive interest is only applicable for the part of the mortgage that refers to the purchase of themain residence. This means that, if the mortgage granted by the bank is for an amount greater than the cost of the property, the deduction can be recognized only for the portion of the mortgage actually used to purchase the house.
In essence, the 19% deduction does not apply to the entire amount of the mortgage if this is greater than the purchase price of the property.
On the contrary, the deduction will be calculated only on the portion of interest relating to the cost of the house, as indicated in the notarial deed, and to the documented ancillary costs, such as notary fees for the purchase deed and any other ancillary costs.
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How to calculate the deduction correctly
To determine the portion of interest on which to apply the deduction, you can use a simple formula, provided by the Revenue Agency. The formula allows you to calculate the proportional portion of deductible interest based on the ratio between the total cost of the property (including accessory charges) and the total amount of the mortgage granted.
Here is the formula:
(Cost of the property + Additional charges) × Interest paid ÷ Total amount of the mortgage
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Practical calculation example
Let’s now look at a concrete example to better understand the calculation. Suppose that:
- The cost of the property indicated in the deed is equal to 150,000 euros
- The additional costs, such as notary fees, are 7,000 euros
- The amount of the mortgage granted by the bank is 180,000 euros
- The passive interests paid in the year are equal to 4,200 euros
Using the formula, the calculation will be as follows:
(150,000+7,000) × 4,200 ÷ 180,000 = 3,663.33 euros
In this example, the 19% deduction will apply to 3,663 euros of passive interest, rather than the total 4,200 euros paid. It is important to note that, in any case, the maximum deductible provided by law is to 4,000 euros.
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Conclusions: What to keep in mind
If you plan to apply for a mortgage that is higher than the cost of the home you want to purchase, it is important to know that the 19% tax deduction on passive interests will be limited to the portion of the mortgage actually used to purchase the home and any documentable incidental expenses. This rule can significantly affect the deductible amount, so it is essential to carefully evaluate the size of the mortgage to apply for.
Always make sure to keep all documentation relating to the purchase of the property and the ancillary expenses, so that you can correctly calculate your deduction and fully benefit from the tax advantages provided by Italian law.
