How can I deduct a credit from my taxes?
In Switzerland, interest on various types of loans may be deducted from taxable income. This applies to both direct federal tax and cantonal tax. The loan amount may be deducted from assets. Deductible interest includes interest on personal loans, credit cards, mortgages, and private loans with a written contract. Companies may also deduct interest on leasing contracts, which is impossible for private individuals.
The condition for deductibility is that the interest was actually paid and documented. Interest certificates issued by lenders are important for tax returns. Only the interest is deductible, not the repayments. The upper limit for the interest deduction is CHF 50,000 plus investment income in the tax year.
The deduction is made by submitting the interest certificate and making the corresponding entry in the tax return under “Personal debts” or “Interest on debt”. Frequent errors are the absence of the interest certificate or the attempt to deduct repayment installments.
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Which loans are tax-deductible?
In Switzerland, interest on loans can generally be deducted from taxable income. This applies to both direct federal tax and cantonal tax. The following list describes the tax-deductible types of loans.
- Personal loans: Loans taken out for personal or consumer purposes without a specific purpose have a fully tax-deductible interest.
- Credit cards: If you use the installment facility on your credit card and incur interest as a result, this interest is also deductible.
- Mortgages: Interest paid on mortgage loans is tax deductible.
- Personal loans: If you have borrowed money from friends or family members in exchange for interest and have a written loan agreement, this interest is also deductible.
Interest from leasing agreements is also tax deductible for companies. For private people, leasing agreements are legally considered rental agreements. Therefore, from a purely tax perspective, it is worthwhile for private individuals to finance cars via a personal loan instead of leasing.
What are the conditions for the deductibility of loan interest?
The main condition for deductibility is that the interest must actually be paid and evidenced by appropriate documents.
The interest certificates provided by the credit institutions are particularly important for the tax return.
Interest is deductible, but the repayment installment is not. This means that only the part of the monthly payment attributable to interest can be claimed for tax purposes.
What are the limits of the interest deduction?
There is an upper limit of CHF 50,000 for the interest deduction plus the investment income earned in the tax year. This rule ensures that the deduction option is not abused and particularly benefits private people whose interest burden is typically below this threshold.
It is extremely rare for a private person to exceed this limit. Even the flat-rate limit of CHF 50,000 is sufficient in the vast majority of cases to deduct all interest. People who reach this limit are, for example, wealthy people who have several houses and correspondingly high mortgage interest rates.
How do you deduct loan interest from your taxes?
The correct deduction of loan interest in the tax return requires no special knowledge. The process is simple and no different from any other deduction. The following step-by-step guide will show you how to do it.
- Obtain an interest certificate: Ensure you get an interest certificate from your lender for the tax year. The certificate is the crucial proof of interest paid. Make sure that the amounts on the interest certificates are correct and match your own records.
- Entry in the tax return: Enter the interest amounts in the tax return under the appropriate heading. The heading can be found under “Private debts” or under “Interest on debt”.
- Add enclosures: Submit copies of your interest certificates together with your tax return. This serves as proof of the interest payments that you are claiming as deductions.
- Submission: Submit your tax return to the relevant cantonal tax authority by the deadline. Check the tax assessment carefully to ensure that all your deductions have been taken into account correctly.
Here is a picture of the position in the tax return where you need to insert the interest.
What are common deduction mistakes?
Two mistakes happen fairly often but are avoidable very easily. The first mistake is not enclosing an interest certificate. You should also keep the original or a copy yourself. The second common mistake is wanting to deduct the repayment installments as well. Only the interest is tax deductible. Repayment installments are not tax deductible.
How is the tax deduction for over-indebted people?
The deductibility of loan interest in the case of over-indebtedness in Switzerland follows the same basic principles as for people with typical debt. Even in the case of over-indebtedness, only the interest is deductible, not the repayment installments. Depending on the complexity of the financial situation, it is advisable to consult a specialist. In serious cases, a help center for people in debt is advisable. In less tight situations, a tax advisor will be happy to help you complete your tax return correctly and optimize all deductible amounts down to the last detail.