31st October 2022

Understanding the tax benefits of a rental investment

Whether it is to live in or rent out, buying a property also offers a number of tax benefits as set by law. In order to help you better understand these benefits, Charles Pletsch, chef adjoint du service Coordination du Réseau d’Agences at Spuerkeess, provides some explanations.

What are the tax benefits of buying your main residence?

Housing savings scheme

If you take out a home savings policy to finance the construction, purchase or renovation of your home, you may, up to the age of 40, deduct up to 1.344 euros of paid premiums from your taxable income per year. If you have more than 40 years, you can deduct 672 euros.

Interest charges

Interest payments under a real estate loan taken out to build, purchase or renovate a main residence are recognised as expenses that are deductible for the purposes of income tax. Since the tax reform of 2017, you can deduct a maximum of 2.000 euros in respect of the year in which you begin occupying the property and each of the following five years.

In respect of the next five years, this cap falls to 1.500 euros, and from the 11th year onwards, you may deduct 1.000 euros. A Luxembourg resident with at least one dependent child may also, under certain conditions, apply for interest relief, that is granted by the state and reduces the interest rate by 0.50% per dependent child.

You’ll find a list of conditions that have to be met in order to benefit from it at www.guichet.lu.

Outstanding balance insurance

In certain circumstances, the Bank may request that the borrower(s) take out outstanding balance insurance (ASRD), which, in the event of their death, will be used to protect the family estate by covering the repayment of the loan.

The one-off ASRD premium is deductible, with the amount varying depending on age.

Tax credit (Bëllegen Akt)

The tax credit is a reduction in registration and transcription fees for all those who are buying a property as a personal dwelling. This tax credit is limited to EUR 30,000 per buyer!

What are the tax benefits of buying a rental investment?

When you buy to rent, you must declare your rental income. However, you may reduce the amount of your rental income by deducting certain expenses, such as:

  • maintenance and repair costs relating to the property, the owner's insurances, electricity and heat charges of the common areas if it’s a flat, administrative expenses, possible legal fees and litigation costs, etc.
  • depreciation, the rate of which depends on when the building was completed. If it was built less than 5 years ago, the rate applied is 4%. Buildings that are older then 5 years, the applied rate is 2%.
  • other expenses: interest payments under the property loan, property tax and duties and ongoing expenses.

Where to find all this information

You may find all the information you require for your real estate project in our housing loan guide. For those who prefer face-to-face meetings, our housing advisers are available to answer your questions!

Brochure "Guide to Housing Loans"

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