What loan fees are tax deductible

loan

Lender:

With the private lender, income (interest, discount, credit fees) from granting a loan leads to income from capital assets. For the corporate lender, income from a loan is operating income.

Borrower:

Private but also corporate borrowers can only claim the expenses (interest, discount, credit fees) for a loan (but not the loan itself) for tax purposes if they are related to the generation of income. This will regularly be the case with corporate borrowers. For them, the loan costs (e.g. interest) are to be recorded as business expenses. In the case of private borrowers, income is generated, for example, if a house is acquired with this loan for the purpose of renting or if the car used for professional purposes is partially or fully financed by credit. For private borrowers, the interest / discount is deductible as income-related expenses for the corresponding types of income.

Loans among relatives are subject to arm's length comparisons. This means that the design and implementation of the contractual agreements must correspond to what is customary between strangers. This includes: naming the term and loan amount, issuing collateral and calculating interest on arrears. If the loan does not correspond to the arm's length comparison, the tax recognition of the loan costs can be denied.

In the case of a non-interest-bearing loan, the interest advantage for the borrower is subject to gift tax. (Cologne Finance Court, judgment of 09/30/2009, file number: 9 K 2697/08).

Laws and Judgments (Sources)

Section 4 of the Income Tax Act

Section 12 of the Income Tax Act

FG Cologne 09/30/2009, 9 K 2697/08

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