Surroga (switching lender)
Moving the mortgage to another bank keeps the right to the deduction, which stays tied to the outstanding capital of the original mortgage.
CAF services · Deductions
Mortgage interest deduction
It is a deduction that lasts twenty years, and every year it is worked out wrongly on a share of tax returns: almost always because the whole instalment is deducted instead of just the interest, or because the mortgage is larger than the cost of the home.
01 · The conditions
When you are entitled to the deduction
The deduction covers interest on mortgage-secured loans taken out to buy your main home. These words must be taken literally: a loan with no mortgage attached gives no right to anything, and neither does a mortgage on a second home.
- The loan must be a mortgage, secured by a charge on the property.
- It must be taken out to buy your main home, meaning the one where you usually live.
- The property must become your main home within one year of the purchase.
- The purchase must take place in the twelve months before or after the mortgage is signed.
- Whoever deducts must at the same time own the property and be named on the mortgage.
- There is an annual cap on the expense the deduction is worked out on, which applies to the whole property and not to each borrower.
The deduction also applies to mortgages taken out to build or renovate your main home, with a cap and rules of their own, separate from those for a purchase. They are two different deductions and cannot be added together on the same mortgage.
02 · The calculation
What goes into the mortgage interest deduction
You deduct a percentage of the interest and ancillary charges, within an annual expense cap. The capital part of the instalment has nothing to do with it.
- The cap applies to the property: if the mortgage is in the names of two owners, each deducts their own share up to half the cap.
- If the mortgage is larger than the cost of the purchase (price plus ancillary charges), the interest can only be deducted in proportion.
- Ancillary charges are deducted in the year they are paid, usually the first.
- The deduction means less tax to pay: if your gross tax is not high enough, you do not recover the excess.
- The bank's annual receipt shows interest and capital separately: it is the document to bring.
| Item | Deductible? |
|---|---|
| Interest | Yes, within the annual cap |
| Capital part of the instalment | No |
| Ancillary charges: valuation, arrangement fee, notary for the mortgage | Yes, in the year they are paid |
| Substitute tax on the mortgage | Yes |
| Recurring bank charges | Yes, if they relate to the loan |
| Property insurance required by the bank | No, it is treated separately |
| Notary fees for the purchase deed | No |
The proportion rule is the least known and the most costly case. If you take out a mortgage for more than the purchase price (because it also covers renovation, furniture or cash), you can deduct only the share of interest in proportion to the cost of the property. The calculation is done once and applies for the whole term.
03 · Two borrowers
When the mortgage is in joint names
This is the most common situation and the one where most mistakes are made, because the split does not follow the ownership shares but the names on the mortgage.
General rule
Each borrower deducts the share of interest that belongs to them according to the names on the mortgage, within their share of the cap.
Dependent spouse
If one spouse is a tax dependant of the other, the latter can also deduct the dependent spouse's share.
Ownership different from the mortgage
If the ownership shares do not match the mortgage shares, you need to check that each person is both an owner and a borrower.
Taking over a mortgage
Anyone who takes over someone else's mortgage in a purchase deed also takes over the right to the deduction, under conditions of its own.
The combinations that remove the deduction
Ownership and mortgage must always go together.
- Named on the mortgage but not an owner: no deduction
- An owner but not named on the mortgage: no deduction
- Mortgage in a parent's name for their child's home: nobody deducts
- Dependent spouse: the other spouse also deducts their share
04 · Losing the right
When the deduction ends
The deduction is tied to how the property is used: if that changes, the right stops from the following year.
- When the property stops being your main home: the deduction is lost from the following tax year.
- When the property is let, even in part, because it is no longer where you usually live.
- When the mortgage is paid off: there is no interest left to deduct.
- When the property is sold, unless the mortgage carries over to a new purchase under the conditions provided.
There are two important exceptions. The right is not lost if the move is for work reasons, nor if the property is lived in by a separated spouse or by the children. These situations are common and worth raising before you give up the deduction.
05 · If you change bank
Switching lender, renegotiating, taking over
Changing the terms of the mortgage does not cost you the deduction, as long as the transaction keeps its original purpose.
Renegotiation
Changing the terms with the same bank does not affect the right, as long as the parties and the property stay the same.
New mortgage to pay off the old one
The deduction continues on the outstanding capital of the old mortgage, not on any larger amount of the new one.
Taking over
Anyone who takes over the mortgage when buying the property also takes over the right, if they meet the main home requirements.
Partial repayment
It reduces the capital and therefore future interest: the deduction falls accordingly, with no other consequences.
Moving home
Selling and buying a new main home has rules of its own: the mortgage has to be linked to the new purchase.
06 · What you need
What to bring to the practice
The deduction has to be documented every year, but the papers for the original transaction are needed only once and remain valid.
- The bank's annual receipt, showing interest and capital separately.
- The mortgage contract, which shows that the loan is mortgage-secured and what it was for.
- The purchase deed, to check the dates and the cost of the property.
- Invoices for ancillary charges: valuation, arrangement fee, notary for the mortgage, substitute tax.
- In the first year you need everything; in later years just the receipt, unless something changes.
- The deduction already appears in the pre-filled return, but it must be checked: the ratio between the mortgage and the cost of the property is not a figure the Agenzia delle Entrate (the Italian Revenue Agency) holds.
The pre-filled return takes the interest reported by the bank, not the share you can actually deduct. If the mortgage is larger than the cost of the property, accepting the pre-filled return unchanged means deducting more than you should.
Frequently asked
The questions that keep coming up
I have a mortgage on a second home. Can I deduct the interest?
No, the deduction is only for mortgages taken out to buy your main home. No interest deduction is allowed on a second home.
The exceptions are some agricultural mortgages and particular situations with rules of their own, which do not concern the usual purchase of a second home.
I have let the home my mortgage is on. What happens?
The property is no longer your main home, and the deduction is lost from the tax year after the one in which its use changed.
If you moved your residence for work reasons, however, you keep the right. It is an exception worth checking before you give up.
The mortgage is higher than the price I paid. Do I deduct everything?
No. When the capital borrowed exceeds the purchase cost of the property, including ancillary charges, the interest can only be deducted in proportion.
The calculation is done once, on the ratio between the cost of the property and the capital paid out, and the same proportion applies for the whole term of the mortgage.
I changed bank through a surroga. Do I lose the deduction?
No. Switching lender keeps the right to the deduction, which stays linked to the outstanding capital of the original mortgage and to its purpose.
Keep both the original contract and the switching contract: together they show that the transaction is continuous.
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The bank's receipt tells you how much interest there is. That is not what you pay
Interest, ancillary charges, capital: only the first two go into the deduction, and not always in full.