Deducting interest and other expenses related to the acquisition / construction / renovation of an unoccupied building
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For purposes of direct taxes, a dwelling which is continuously available to a taxpayer is to be treated as a principal or secondary residence.
Who is concerned?
The information on this page applies to:
- any resident who owns a building in Luxembourg or abroad that is in the process of being constructed, renovated or completed, but is not yet occupied;
- any non-resident who owns a building in Luxembourg that is in the process of being constructed, renovated or completed, but is not yet occupied;
- any non-resident who owns a building abroad that is in the process of being constructed, renovated or completed, but is not yet occupied, and who opts to be treated as a resident for tax purposes when filing an income tax return.
In all of the scenarios mentioned above, the taxpayer must submit an income tax return (see, in this regard, "Conditions under which resident or non-resident taxpayers become subject to reporting requirements in Luxembourg") in order to claim a tax deduction for expenses for the acquisition of income.
How to proceed
Tax-deductible expenses for the acquisition of income
As regards the deduction of expenses for the acquisition of income for a building that is in the process of being constructed, renovated or completed, but is not yet occupied, a distinction is made between residents and non-residents.
When filing their income tax return (form 100), the taxpayer must attach a certificate showing the amount of interest paid on the mortgage in the tax year in question.
However, the tax office may request other supporting documents, such as copies of the notarised deed establishing the loan arrangement, or invoices provided by contractors following the completion of the work.
Other tax-deductible expenses for the acquisition of income
In addition, other expenses for the acquisition of income that are economically related to the construction or renovation of a building are tax deductible, provided that such expenses are paid before the dwelling is occupied.
Consequently, in the case of a building that is in the process of being constructed, renovated or completed, but is not yet occupied, the financing expenses are considered to be tax-deductible expenses, such as business expenses (cost of income acquisition). These expenses include:
- deed fees for the credit account opening;
- other expenses in relation with the loan (namely interest payments);
- property tax;
- a one-off commission;
- the deed for the mandatory mortgage;
- administrative charges.
On the other hand, investment-related expenses are not tax-deductible as expenses for the acquisition of income. Investment-related expenses are expenses that are incurred for the purpose of changing the nature of the building (such as the division of a dwelling into smaller dwelling units, or the conversion of a dwelling into commercial premises) or improving it (by installing a central heating system or a lift, for example) or extending it (such as by adding a room or finishing the attic). These expenses are to be amortised by applying the amortisation rates provided for this purpose (see below).
For the sake of simplicity, the Luxembourg Inland Revenue considers that renovation costs of up to 20 % of the purchase price (excluding land) do not constitute a major improvement of the property, and therefore deems them maintenance and repair costs.
If the price of the land is not known, it can be assessed at 20 % of the total price of the land and the building, including deed fees.
The amortisation rate applied to the purchase price (excluding land), plus the notarial deed fees and investment-related expenses, is as follows:
- 1.5 % for buildings that were completed fewer than 30 years previously;
- 2 % for buildings that were completed between 30 and 60 years previously;
- 3 % for buildings that were completed more than 60 years previously.
The above-mentioned expenses for the acquisition of income are tax deductible for the period preceding the occupancy of the building as their dwelling by the owner or tenant, provided that the period of vacancy is less than 2 years.
Expenses for the acquisition of income for a plot of land to be developed
Costs in connection with a plot of land to be developed (interest, municipal taxes and duties, insurance, etc.) are tax deductible as expenses for the acquisition of income if the taxpayer has a concrete project to build on the land, with works scheduled to begin no later than 2 years after the acquisition.
If construction works are not scheduled to begin within 2 years, the expenses for the acquisition of income are not tax deductible, unless the land generates rental income.
However, the interest paid in connection with the plot of land to be developed will be deductible from the taxpayer's income as special expenses.
Residents
Resident taxpayers who file an income tax return may claim the tax deduction for expenses for the acquisition of income in connection with a building located in Luxembourg or abroad that is in the process of being constructed, renovated or completed, but is not yet occupied.
The total amount of these expenses or interest is to be reported in boxes 1017 - 1018 (if the building is located in Luxembourg) or boxes 1019 - 1020 (if the building is located abroad) under "Determination of net income from property rentals" on page 10 of the 'Form 100' income tax return.
Details regarding debt and interest payments are to be entered in boxes 1051 to 1070.
As soon as the property is occupied by the owner, they can deduct the interest paid on a loan used to finance their principal residence.
Expenses and interest in connection with a loan to finance a rental building are tax deductible.
Non-residents
Non-resident taxpayers may claim the tax deduction for expenses for the acquisition of income in connection with a building located in Luxembourg that is in the process of being constructed, renovated or completed, but is not yet occupied, by filing an income tax return. This option is only of interest to non-resident taxpayers if they receive other taxable income in Luxembourg.
Non-resident taxpayers may claim the tax deduction for expenses for the acquisition of income in connection with a building located abroad that is in the process of being constructed, renovated or completed, but is not yet occupied, if they opt to be treated as a resident for tax purposes by filing an income tax return.
The total amount of these expenses or interest is to be reported in boxes 1017 - 1018 (if the building is located in Luxembourg) or boxes 1019 - 1020 (if the building is located abroad) under "Determination of net income from rental property" on page 10 of the 'Form 100' income tax return.
Details regarding debt and interest payments are to be entered in boxes 1051 to 1070.
As soon as the property is occupied by the owner, they can deduct, under certain conditions, the interest paid on a loan used to finance their principal residence.
Expenses and interest in connection with a loan to finance a rental building are tax deductible.
Online services and forms
Who to contact
Luxembourg Inland Revenue
-
Luxembourg Inland Revenue
- Address:
- 33, rue de Gasperich L-5826 Hesperange Luxembourg
Please click on the link above to find the competent department.
Luxembourg Inland Revenue
-
Luxembourg Inland Revenue
- Address:
- 33, rue de Gasperich L-5826 Hesperange Luxembourg
Please click on the link above to find the competent department.
Related procedures and links
Procedures
Links
Further information
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Revenu net provenant de la location de biens
sur le site de l'Administration des contributions directes
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Mémento fiscal - Résumé des impôts directs perçus
sur le site de l'Administration des contributions directes (ACD)
Legal references
Déduction des intérêts débiteurs en relation avec l’acquisition ou la construction d’une habitation située à l’étranger et occupée par un contribuable non résident
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