Homeowners: which works are deductible, and which are not
Imputed rental value, mortgage interest, renovation invoices: property taxation comes down to a single distinction, and that is where it is decided.
Owning your home changes a tax return completely. Three items are added, and the third is the one that costs most when you get it wrong.
Imputed rental value
You live in your own house, so you pay no rent — but the tax office considers that you are housed free of charge and adds a notional amount to your income: the imputed rental value. It increases your taxable income, and there is no way around it.
Mortgage interest
The good news on the other side: the interest on your mortgage is deductible. Not the capital repayments — only the interest. That is what partly offsets the imputed rental value.
Renovation work: maintenance or added value?
This is where it is all decided, and this is where mistakes cost money.
Maintenance costs are deductible. They keep the property in good condition: replacing a boiler with an equivalent one, repainting, replacing roof tiles, repairing an installation.
Value-adding costs are not deductible. They increase the value of the property: building a conservatory, converting the attic, installing a swimming pool, adding a room.
Between the two there is a very common grey area: a kitchen completely rebuilt, windows replaced with triple glazing, a heat pump installed in place of an oil boiler. Such work is often partly deductible, and some energy-saving investments enjoy special treatment.
Flat rate or actual costs
You can deduct a flat rate, calculated on the imputed rental value, or your actual costs against receipts. The choice is made each year, property by property. A year with major work: actual costs. A quiet year: the flat rate, often more favourable.
Many homeowners take the flat rate by default, including in the year they redid the roof. That is a deduction lost.
Keep all your invoices
Even the ones you have doubts about. It is our job to decide what counts and what doesn't, and to choose the more favourable method.
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