The interest paid on the loan for an owner-occupied residence is deductible for income tax purposes in Box 1. This generally takes the form of a mortgage interest. To qualify, the house must be the taxpayer’s principal residence. However, interest deduction may also be possible for the taxpayer’s former house if it is up for sale and standing empty. The interest is deductible for up to two years after the calendar year in which the house is vacated. Thus, in this period, a double interest deduction is possible: one for the new house and one for the former house that is standing empty and up for sale.
In the current economic climate, houses are taking longer to sell. Temporarily renting out a house while it is on the market prevents houses from standing empty and lightens the burden of double housing costs. While the former house is being rented out, it and the loan for it move to Box 3, meaning that interest deductions in Box 1 are no longer possible.
Mortgage interest deduction is reinstated once the house is vacated again
The disadvantage of temporarily renting out a house is that the interest deduction in Box 1 is not reinstated once the renter vacates the house, not even when this happens within the two-year period in which a double interest deduction would otherwise still have been possible. In the current housing market, that is seen as a missed opportunity. Deputy Minister of Finance De Jager therefore gave approval for the mortgage interest deduction to be reinstated for the remaining period in which the double interest deduction is possible.
The measure is only temporary
The measure only applies, in principle, to houses rented out on or after January 1, 2010, and will only apply for two years. As of January 1, 2012, the current regulations will again apply. The Cabinet will submit a bill to the Lower House containing the proposed measure this fall.