Interest paid on a loan – a deductible item from the income tax base of the FO

Interest paid on a loan – a deductible item from the income tax base of the FO
The taxpayer has the option to reduce his/her tax base by the amount of interest paid during the taxable year on a loan from a building savings or mortgage loan that was arranged for the purpose of financing the housing needs of his/her spouse, the other spouse, descendants, parents or grandparents of both spouses. If the housing need is also used for self-employment or rental purposes, the taxpayer may deduct interest for the time the housing need is also used for these purposes only on a pro rata basis. In total, a maximum of CZK 150,000 may be deducted from all loans of a jointly managing household. If interest is paid for only part of the year, the amount claimed may not exceed 1/12 of the maximum amount for each month of interest payment. If more than one adult participates in a home finance loan agreement, the interest deduction may be made either by one of the participants or by each of them equally.

Housing need means:

• The construction of a condominium, single-family home, or unit that does not include non-residential space other than a garage, basement, or storage room,
• the acquisition of land for consideration, provided that construction is commenced within 4 years of the acquisition of the land; or
• the acquisition for consideration of a dwelling house, a family house or an unfinished building of a dwelling house or a family house.

If the subject of the housing need is the purchase of land and the condition of commencement of construction within 4 years from the time of acquisition is not met, the taxpayer must repay the amounts by which the taxable amount has been reduced in the preceding 4 years by the interest paid on the loan.

The provider of the building society loan or mortgage loan shall issue the taxpayer with a certificate stating the amount of interest paid. This certificate becomes an attachment to the tax return if the interest is claimed as a non-taxable part of the tax base. The tax authority shall also require a building society loan or mortgage loan agreement.