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Taking loan interest into account for tax purposes – here's how it works!
One in three people in Switzerland has or has already had a consumer loan. However, many people still don't realize that interest incurred on personal loans is tax-deductible – and therefore pay more tax than they actually should. We explain here how borrowers can claim their debts in their tax return on 31 March.
What is the legal situation?
The Federal Direct Federal Tax Act (DBG) stipulates in the Tax Remission Ordinance SR 642.11 Art. 33 that individuals can claim interest on personal loans up to an amount of CHF 50,000. This so-called ‘tax deduction’ reduces the taxable income – and therefore the taxes that have to be paid on the income.
Which loans are tax-deductible?
To be able to deduct debt interest in your tax return, the loan must be one of the following:
- Credit card utilization
As leasing is not categorized as a type of loan, interest from leasing contracts cannot be claimed on your tax return. This also applies to the depreciation of the leased goods (e.g. leased vehicles), which is also not tax-deductible.
Tip: When buying a car, it is therefore particularly advisable to pay attention to the advantages and disadvantages of leasing compared to a car loan. Because even if it seems tempting at first glance, car leasing harbours some hidden costs.
Fill out debtor register correctly – LEND interest statement
At the beginning of the year, LEND customers receive an individualized interest statement so that they can easily keep track of the interest on their current loans. This document contains all loan interest for the previous calendar year. This provides them with all the information they need for their tax return.
The data from the LEND interest statement can simply be transferred to the list of debts in the tax return.
Once the entries for all current loans have been completed in the debt register, only the total amount needs to be entered in the main tax return form.
By making this entry, the loan interest is deducted from the income and recognized accordingly for tax purposes. In short: the tax payable is reduced.
Tip: If the loans utilized were granted by natural persons (e.g. friends or family), copies of the loan agreements and transfers should also be attached to the tax return.
With this information, nothing stands in the way of a tax deduction. If you have not yet made use of this option, now is the time! Of course, it doesn't make sense to take out a loan just to reduce your tax burden - however, a favourable loan like LEND is usually the better and more transparent alternative to leasing or “0 % financing”.
