The debt interest of a business can be stated as expenses in the tax return. For example, if the company has borrowed, which is responsible for taxable income. Then, the corresponding interest can be considered as operating expenses, or as advertising costs. Since loans usually always call interest on the plan and it is equally debt, one speaks of interest on debt. These may ultimately be deducted in full as operating expenses, unless certain conditions prevent the operation from doing so. These are clearly anchored in tax law.
Debt penalty – when is it abusive design?
In fact, it is not uncommon for tax law to often lead to misuse of debt interest deduction. For example, if an entrepreneur withdraws his operating funds for private expenditure. If this gap is then closed by borrowing, the private interest is converted into operating interest. The latter can then be considered as debt interest. For this reason, the deduction of interest is limited and firmly regulated.
Debt interest must have an operational reason!
Only if there is a business connection between the interest accrued and the business processes can the interest rate be considered as such. If the company account is used for business as well as for private purposes, only the operating interest can be subject to the statutory provisions. Private withdrawals of course not.
Debt interest is all expenses incurred for obtaining and securing a loan. These include ancillary costs of the loan and the cost of raising money. Even deferred interest, repayment interest and suspension interest are included here.
Debt interest on the purchase of real estate
If borrowed capital is raised, interest is charged. So also in the context of mortgage lending, whereby one can also speak of loan interest. The difference between the effective and nominal interest is important. While the nominal interest rate is the interest that must be paid on a loan, the effective interest rate describes all actual costs and credit conditions. So also processing fees, etc. If a property is now used as a rental property, the landlord can make the interest on debt tax deductible and deduct this as income-related expenses. For this it is sufficient, if only part of the apartment is rented and in the other the landlord lives.
Conditions for the enforcement of interest on debt
However, it is important for the assertion and the debt interest deduction that the owner is the borrower and is registered in the land register. The unregistered wife can not claim interest, the other way, of course. Owners and borrowers must be identical, regardless of whether they are single persons or spouses.
Private interest can not be claimed for tax purposes, either as a special issue or as an extraordinary charge. Here is to distinguish clearly.