Homeowner’s Tax Deduction: Home Loan Interest Tax Deduction

The tax season is here again, and many people want to know more about tax saving, so as to reduce the tax burden for taxpayers. Among them, the Inland Revenue Department provides a tax deduction scheme specially designed for Hong Kong owners, allowing them to deduct tax through “home loan interest”. This article will introduce the home loan interest tax deduction and the things you need to pay attention to.

Home loan interest tax deduction

According to the guidance of the Inland Revenue Department, the tax deduction on home loan interest (the deduction for property loan interest) is actually a mortgage for self-occupied properties. The loan interest can be deducted from the salaries taxable income or personal assessment income. It is deducted from the total amount to achieve the purpose of tax deduction, and those who pay tax at the standard tax rate can also benefit.

However, the annual deduction cap for home loan interest deduction is HK$100,000. Since the announcement of the 2017 Budget, the tax deduction period for the project has been increased to 20 tax years after the year 2017/18. Owners can choose the tax year for which they apply for tax deduction, and there is not a must for continuous application.

Conditions for claiming the tax deduction

To claim tax deduction for the loan interest of the self-occupied property, even if you have participated in the process of financing the property, as long as you have no title, you cannot claim tax deduction. Basically, the following conditions must be met:

• The owner-occupied property is located in Hong Kong;

• The claimant is the owner of the property: the sole owner, a joint owner or a joint owner;

• The property was used for the taxpayer’s own occupancy during the relevant year of assessment (if some of the property is a place of residence, the deduction may be deducted accordingly);

• Loans that accrue interest, must come from the purchase of the property;

• the loan is secured by a mortgage or charge on the property or any other property in Hong Kong;

• Loans are provided by government-approved institutions, legal lending institutions.

Are pre-occupancy contributions tax deductible?

It is worth noting that no contributions made prior to the move-in will be considered eligible for tax deduction. Even if the bank successfully approves the mortgage, it will only be regarded as uncompleted and not recognized as owner-occupancy.

Are the same range of parking spaces tax deductible?

As long as the parking space is purchased at the same time as the property at the time of the loan, and only for self-use, the parking space interest within the same property can also be used for tax deduction.

How is the interest of further charge calculated?

If the loan amount in the future is still in arrears earlier, the Inland Revenue Department will deduct the high interest that can be claimed on a pro-rata basis.

Rental property tax deduction

On the contrary, owners of rental properties can also use the interest on the property to be used to assess the property tax and personal assessment paid, but they can only deduct a maximum of 20% of the standard allowance, and cannot directly deduct loan interest expenses.

Since the Inland Revenue Department will assess the combined salaries tax for personal assessment, that is, in the “Personal Assessment”, profits tax and property tax will be assessed together. Therefore, the owner should estimate a tax before applying for any tax deduction items. The most cost-effective tax plan, see whether it is more favorable to file your taxes separately, or to file your taxes as an individual.

If the taxpayer who holds the rental property does not live in Hong Kong for a long time, that is, if the taxpayer has lived in Hong Kong for less than 180 days per year, or has lived in Hong Kong for no more than 300 days for two consecutive years, he can only be assessed by property tax, and cannot apply for personal income tax. tax, nor can it be used as a tax deduction.

The above information is for reference only. If you have any questions about tax declaration and accounting, we welcome your inquiries.