Save tax with a loan – how do I deduct the loan from income tax?

Save money with a loan? How is that supposed to work? Quite simply: by deducting the interest payments at the end of the year from tax, which reduces the tax you have to pay. This is not difficult; we show you how it works. In the end you pay less tax and therefore save money.

In Germany, loan costs can be deducted from income tax at federal and state (Land) level where the statutory conditions are met (Income Tax Act – EStG). Only the actual interest portion can be deducted, not the entire instalment, because the repayment portion is not deductible. It is also useful to know that the interest share of the monthly instalment decreases over time, while the repayment share increases. During the loan term, the interest amount that can be deducted from tax therefore falls.

At the end of each year you receive an interest certificate from us or your lender showing the amount to be deducted. Attach it to your tax return and deduct the amount in the relevant columns.

Interest can be deducted not only on loans from banks or brokers. The interest deduction also applies to credit-card debt and private loans where the legal conditions are met. In the latter case the money is lent by family members or friends, so there is no interest certificate from the lender. Instead, attach copies of the loan agreement and the bank evidence of the payments made to the tax return.

Where exactly must interest payments be entered on the tax form for the interest deduction?

Use the debts schedule in your income-tax return (here an example from a typical German tax return):

Enter your interest here and then transfer the result of this page to the main form. There you will find the line in which you can deduct the interest payments.

Done! When the return is balanced, the interest is deducted from income at federal and Land level and you pay less tax.

Interestingly, interest costs are deductible on loans, but not on leasing. The tax authority treats leasing as rent and not as a loan, so if you buy a car on a lease the interest CANNOT be deducted. Besides advantages such as being 100% owner of a new car, lower insurance costs and greater flexibility, a after-tax cost comparison of a new car financed by a loan comes out clearly better. You can see: with sound financial knowledge you too can only benefit.

It does not matter whether you take out a personal loan, a bank loan or a construction loan; never forget to deduct the interest from tax and save real money. We are also happy to advise our customers on tax questions. Just call us.

You too almost certainly have a big dream you would like to fulfil, but do not currently have the cash. No problem – take out a loan at the lowest possible interest rate. We are happy to advise you and help you find the right solution. You can also apply for a loan with us directly online.

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