How do I get a tax deduction if I decide to refinance my mortgage?
Mortgages are now very popular and many banks offer different terms to borrowers. It often happens that you take a mortgage at one interest rate, then time passes and another bank offers better conditions. In order not to overpay, you can refinance a loan. How to refinance and preserve your right to a property tax deduction? What should you consider when taking out a new loan? The details are below.
Is the right to deduction not lost when refinancing a mortgage?
Mortgage refinancing means taking out a new loan from a bank on more favorable terms to repay a previous loan.
The fact of refinancing has no effect on the right to a property tax deduction. In drawing a deduction you will need to collect supporting documents. You will definitely need a mortgage agreement and certificate of interest paid. So if you refinance your mortgage, and you plan to receive a tax deduction, you need to make sure that the new contract specifies the property for the purchase of which you are refinancing the original loan. That is, there should be a clear connection between the original mortgage and the new loan.
If you simply took another loan to close out the old loan (with no connection to the previous loan), you won't be able to get a tax deduction.
We recommend that you immediately take care to obtain a document that clearly shows the amount of the principal balance at the time of refinancing. He will need to get a deduction in the tax office.
Recall the conditions for receiving a tax deduction.
Who can get a property deduction?
There are 2 conditions under which you can get a tax deduction at the same time:
You must be a tax resident, i.e. you must reside in the Russian Federation for more than 183 days per year
You must have income subject to personal income tax at the rate of 13%, and pay tax on it.
From 2021 you will be able to receive a deduction from the following types of income received:
From employment and civil-law contracts,
From payments for the provision of various services,
The sale and rental of property,
Social security and retirement benefits.
How much money can you get back from the deduction?
You will be able to get back 13% of the interest paid on the mortgage, but no more than 390,000 rubles per year. The limitation is due to the fact that this deduction has a limit of 3 million rubles, and by law you can return no more than 13% of the limit.
If you took out the original loan before 2014, now you will not have a limit on the amount of the return - how much interest you paid, from this amount you will return 13%. The thing is, there was no deduction limit before 2014, so there won't be one now.
Remember, a tax deduction is a refund of previously paid personal income tax, so how much tax you paid in a year is how much you can get back.
You can refinance the mortgage several times (by law there is no limit), but remember that a prerequisite for the deduction is a clear link between the loans and the purpose of the loan must be to acquire the property stated in the first contract.
If you take a new loan for more than the balance of the principal on the original loan, the deduction will be calculated in proportion to the balance.
How do I take a deduction when refinancing?
The same way as for a regular mortgage - either through your employer or through the tax office.
Remember that in order to claim a deduction through the inspectorate, you must wait until the end of the calendar year in which you incurred expenses, and then apply for a deduction.