Many borrowers know that it is possible to deduct the interest on a loan from their tax return. However, this simple method, often forgotten, saves sometimes significant sums. We will show you how to use your tax benefit as a borrower and clarify the most important questions about it.
What can we deduce?
In Switzerland, the Confederation, the cantons and the municipalities each levy their taxes separately, the Confederation taxing income, while the cantons and municipalities tax income and wealth. As an individual, you can report certain expenses that reduce your income each year, so you don’t have to pay tax on those expenses. The interest paid on the loans is part of these cartoons, which is why the amounts transferred for the loans are exempt from taxes for the Confederation and the cantons! In other words, your taxable income is deducted from the interest paid.
Please note: As a consumer credit holder, you transfer an amount to the credit bank each month. This includes not only interest, but also part of the repayment of your loan. Interest is the only tax relief available, but the repayment is not.
What interest can I deduct?
All interest paid and linked to a private loan is tax deductible. This means that you can deduct expenses for personal or consumer loans, mortgages, loans from private third parties and even interest related to credit card cards. If you paid interest on money borrowed from an individual (eg, friends or relatives) during the tax year, you must ask them for a specific statement of interest paid so that it can deduct them. Note: A rental agreement is not considered a loan and the interest paid cannot be deducted from your income.
How can I declare my interest?
The tax declaration must be filed annually throughout Switzerland by March 31 at the latest. At the start of the year, your lender will send you a statement of interest paid during the year. This document serves two purposes: first, it provides information about the interest you have paid and, second, it serves as proof of the deduction to the tax authorities. All you have to do is enter the interest paid on your tax return in the field provided for this purpose at federal and cantonal levels and attach the document of the lender as proof. You have already benefited from tax relief for borrowers!
How much can I save?
The saving potential of loans naturally depends first and foremost on the amount of interest paid, which in turn depends on the amount of the loan, the term and the interest rate. Savings also fluctuate depending on the amount of your income and your canton of residence: for example, if you earn $ 30,000 per year in the canton of Bern, you pay 5.6% income tax; if you earn $ 100,000 per year, you pay 17.5% income tax. As an example, we can assume that a loan of $ 25,000 for 36 months with an interest rate of 9.9% the first year costs around $ 1,800 in interest. The holder of this loan, for example, pays 10% income tax in his canton, which allows him to save 180 francs on cantonal tax.It should not be forgotten that this deduction is also possible with the Confederation, so that the savings potential is even higher!
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