Owning your home instead of renting is considered a taxable benefit for Box 1 purposes. This taxable benefit is determined by means of a fictional so-called "eigenwoningforfait" or deemed rental value (see below).
However, you are allowed a deduction for mortgage interest paid on your home mortgage. You can deduct the interest that you paid on the qualifying mortgage loan for the home. Only mortgage loans that were used for the purchase of the home and for structural work on the home are considered as qualifying mortgage loans. There is currently no limitation to the value that is considered a qualifying loan. The mortgage interest deduction is allowed for the first 30 years. However, if the property is no longer considered your primary residence, it will no longer be considered as a part of Box 1, and you will no longer be allowed to claim a deduction for the mortgage interest payments. You are therefore only allowed a deduction for the mortgage interest payments for 1 home: your primary home.
Exceptions to the limitation of only being allowed to claim a deduction for mortgage interest payments on your primary home are:
- in the case where your former home is vacant and for sale then you are allowed to continue claiming the mortgage interest deduction for your former home a maximum period of 3 years. This is allowed in addition to the mortgage interest deduction on your new current home;
- in the case that you are building or remodeling your future home (or you have just not yet moved to the new home for whatever reason) then you are allowed to claim a deduction for the mortgage interest payments for up to 3 years prior to moving in to your new home. This is allowed in addition to the mortgage interest deduction on your old current home;
- in the case that you move to a retirement or nursinghome but your family still continues to live in the home.
If these exceptions do not apply to you or no longer apply to you, then the home will be considered as an asset and will be subject to Box 3 taxation.
Deemed rental value
The deemed rental value is not actual income, but a fiction in the Dutch income tax system that is deemed to represent the benefit of owning your own home. This is determined as 0.60 percent of the value of the home. The value of the home is determined by the local municipality each year. This valuation is referred to as the WOZ-value of your home. If the home is worth more than EUR 1,040,000, an additional income increment is added to the deemed rental value.