If you have not yet made the declaration of income tax for 2020 and you have a mortgage life insurance, you may meet the requirements to be able to save up to 1,356 euros . What must you comply with and how much money can you deduct?
Requirements to deduct mortgage life insurance
You can deduct the premium if you meet all these conditions:
The mortgage must be prior to January 1, 2013
Only people who bought their home before that date can deduct the expenses associated with the acquisition of the house. These expenses include the mortgage payments, the life insurance premium or the home insurance premium. In 2013, this tax deduction was abolished, so the expenses related to subsequent mortgages can no longer be deducted . Instead, it remains in effect for those who bought the house before that year.
Must be mortgage linked life insurance
This means that the insurance was a requirement to get the loan and that it is tied to it . Likewise, it is very likely that this implies that, if the insured died, the bank would be the beneficiary of the compensation , in order to pay off the debt of the house.
So, if you have a traditional policy, to leave some money for your children to study, for example, you will not be able to include it in the statement.
Only the habitual residence
You can deduct life insurance only if it is tied to your main home, not to second homes or vacations . The Tax Agency considers a habitual residence to be that in which you have resided for at least three continuous years and that you lived in effectively and permanently for a maximum of 12 months after buying or renovating it.
How much money does mortgage life insurance deduct?
Mortgage life insurance on loans prior to 2013 is considered an expense for the purchase of the home and, therefore, can be deducted. In total, the Treasury allows all the expenses associated with the acquisition of the house to add up to a maximum of 9,040 euros . And, of that figure, you can deduct 15%: 1,356 euros of savings.
That 15% deduction changes in some communities. The state section is 7.5%, and each region establishes its autonomous section, which usually also coincides with 7.5%. Likewise, there are other expenses related to the mortgage that can also be deducted depending on which region you live in.
Let’s take an example to better understand how much money mortgage life insurance deducts:
A person paid 8,000 euros of mortgage during 2020, a premium of 200 euros for their mortgage life insurance and another 100 for home insurance. Since the mortgage is prior to 2013, they are all considered deductible expenses. They add up to a total of 8,300 euros, of which 15% can be saved in the declaration: 1,200 euros.
On the other hand, if the expenses had totaled more than 9,040 euros (for example, if the mortgage were 10,000 euros), the maximum amount could be deducted: 1,356 euros.
The self-employed can deduct the premium even if they bought the house after 2013 or it is not linked to their mortgage. The self-employed can deduct their insurance premiums (medical, life and those related to their activity), up to a maximum of 500 euros.
On the other hand, in the Basque Country and Navarra, personal income tax deductions are managed by regional governments and have their own legislation. So, if you live in the Basque Country you can get a deduction of 18% , regardless of the date of purchase of the house:
- Vizcaya: the maximum base is 1955 euros.
- Guipúzcoa: the maximum base is 1,530 euros or 2,160 if the home was purchased before January 1, 2012.
- Álava: the maximum base is 2300 euros.
For its part, in Navarra you can no longer get the deduction for new home purchases, but those who bought before January 1, 2018 can still benefit from it .
What if the two mortgage holders make a joint declaration?
Each person can deduct 15% of a maximum of 9040 euros. Therefore, it is often more beneficial for the two loan holders to file separately . Let’s take an example:
A married couple with a mortgage has paid a total of 12,000 euros during 2020. Both are equal holders of the loan, so each would have paid 6,000 euros. If each one deducts his part, 15% of 6000 euros may be deducted: 900 euros. By doing it separately, you save a total of 1,800 euros.
On the other hand, if they did it jointly, only 15% of 9,040 euros could be deducted, the maximum allowed base. That means that 1,356 euros would be saved, less money than separately.
What box must be completed on the income tax return?
Deductions for investment in habitual residence are included in boxes 547 and 548 of the return.
- Box 547: corresponds to the state deduction percentage (7.5%). It will be the result of adding the figures in boxes 0699, 0700, 0702 and 0704, where the different expenses associated with housing must be included.
- Box 548: corresponds to the regional percentage (which also tends to coincide with the state percentage, 7.5%). In this case, it will be the sum of boxes 0699, 0701, 0703 and 0705.
Remember: mortgage life insurance deducts and protects
Those who bought their home before 2013 are fortunate that mortgage life insurance not only protects their home , but also helps them with their income tax return. If you meet the requirements, you are self-employed or you live in Navarra or the Basque Country, take good note of how mortgage life insurance is tax-deductible in the 2020 income campaign.