Each year, many borrowers forget to deduct the interest on their personal credit from their tax return. How does this deduction work and what documents should I request? Our explanations.
When signing a private credit agreement, the borrower agrees to reimburse the financial institution each month a fixed amount which depends on the amount borrowed, the duration of the loan, and the interest rate. interest practiced. However, this amount is broken down into two distinct parts:
- The repayment of the loan itself.
- Interest paid.
If the breakdown is not indicated on the invoices, it is nevertheless important, because the total interest paid during the year can be deducted from his taxable income when declaring taxes. In some cases, this deduction can result in a significant reduction in taxes payable.
Do you have to declare your loan?
Taxpayers are legally under no obligation to declare their loan. However, it is strongly recommended to do so, because this declaration saves on your taxes!
How to do it?
Normally, the financial institution that granted the loan automatically sends the interest certificate in January. It will then suffice to deduct this interest when declaring taxes, and to attach a copy of this certificate for the taxman. If you forget the bank, it is entirely possible to claim this certificate, normally free of charge.
Legally, it is possible to deduct from your taxes all interest paid as a result of a debt. This includes, among other things, the following:
- Credit cards: the institutions providing the credit cards do not usually send a certificate automatically. It is therefore up to consumers to request proof of the interest paid during the fiscal year concerned.
- Credit vehicles
If leasing is sometimes equated – wrongly – with a form of borrowing, you should know that leasing costs are not tax deductible. For more information on the differences between credit and leasing, Lifecredit offers a full explanation with a comparison of the two services.
How much can we save?
The tax paid being subject to a scale, everything will depend on the situation of each. For example, a loan of 20,000 dollars over 24 months can represent, during the first year of repayment, interest paid greater than 1,200 dollars! Based on a deduction of 1’200 dollars, and with a tax rate of 10%, this represents a saving of 120 dollars!
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