Interest deduction for a vacation home mortgage? It's possible!

Criteria for being an owner-occupied home

If you own a holiday home, it can only be considered your own home for tax purposes if it serves as your primary residence (see below). It's important to note that you and your tax partner (if applicable) cannot have more than one primary residence. If you and your partner own multiple homes that can be considered your primary residence, you can jointly choose in your income tax return(s) which home should be considered your primary residence. In practice, this is usually the home with the largest mortgage interest burden.

Ownership requirement

A home that serves as your primary residence can be considered your own home if you are the legal or beneficial owner of the property. You are the legal owner of the property once it has been transferred (delivered) to you by a civil-law notary. In this context, beneficial ownership is essentially the same as legal ownership, but without the property being legally transferred to you by a civil-law notary. With beneficial ownership, you enjoy the benefits (increase in value, use) of the property and are responsible for the disadvantages (costs, decrease in value). The law stipulates that, for (beneficial) ownership to be valid, you must be responsible for at least 50% of the property's value changes. You can consult your civil-law notary or another expert advisor for advice on whether you are the (beneficial) owner.
have become (involved) in the home.

Main residence

If the ownership requirement is met, a holiday home can be considered a private residence if the owner uses it as their primary residence. In practice, this situation will be the exception rather than the rule, especially if the owner uses the holiday home as a second home and the interest on the primary residence is higher than the interest on the holiday home. A choice between the two properties will always favor the primary residence. The holiday home, along with any mortgage loan taken out for it, will then be taxed in box 3 as income from savings and investments, regardless of whether this loan was taken out with the holiday home or the primary residence as collateral. However, if the primary residence is rented and a holiday home is also purchased, no choice between the two properties needs to be made if both properties can be considered a primary residence. After all, there is no mortgage debt on the rental property. The question of whether a holiday home can be considered a private residence for tax purposes was recently addressed in case law.

Example 1 from case law

X owns a holiday home and wants this holiday home to be classified as his own home for tax purposes. X stays in the holiday home during the weekends (from Friday afternoon to Sunday evening or Monday morning), public holidays, school holidays and his days off (a total of 170 days per year). The other (weekdays) X stays in a rented home because of his work. The two homes are 128 km apart. Visitors and guests are only received in the holiday home.

In this case, the court ruled that a home qualifies as a principal residence if it is plausible that that home is the central place of life. Where someone has their central place of life is assessed based on the circumstances. According to the court, the decisive factor is where X has his social life, and that is in the holiday home. The fact that X also does his shopping, works, goes to the dentist, etc., in the vicinity of his rental home was given less weight by the court. It is noteworthy that the fact that the holiday home may not be lived in permanently based on the zoning plan played no role in these proceedings.

This positive outcome for X does not mean that a holiday home can be regarded as a principal residence relatively easily. This has recently become apparent from another ruling (see example 2 below).

Example 2 from case law

Y owns two homes: a holiday home and a main residence. The holiday home was included in Box 3 of the Personal Records Database (BRP) from 2001 through 2014. Y was registered (in the Municipal Personal Records Database) in the place of his main residence. The main residence was for sale throughout 2015. It was then sold to Z, who became the owner of the home in July 2016. In his revised 2015 and 2016 tax returns, Y declared the main residence as a vacant owner-occupied home for sale and designated the holiday home as his main residence. Based on this, he deducted the interest related to both homes in the revised 2015 and 2016 tax returns in Box 1 (taxable income from work and home ownership). In these proceedings, the court ruled that the holiday home was not Y's main residence and substantiated this with the following arguments.

1. Y has never been registered at the address of the holiday home;
2. It is prohibited to permanently occupy the holiday home (stays of up to 180 days per year are permitted), this prohibition is strictly enforced;
3. The holiday home is also partly rented out to third parties.

However, there are several objections to the judge's argument. To begin with the latter: temporarily renting out one's own home does not, according to the law, deprive the home of its primary residence status. The second argument, that permanent residence is not permitted, says nothing about a factual assessment of whether a home is someone's central place of life (see also example 1). The first argument flows directly from the second and is therefore irrelevant.

Summary and tip

Both case law examples paint a different picture of how a holiday home qualifies as a principal residence than would apply under the law. This is remarkable. Reading the second example, it appears that the judge seems to believe that the house for sale was, in fact, the principal residence, just as it had been in previous years, because Y acknowledged that he had stayed in that house for several periods (the total number of days is unknown) for medical reasons. However, this does not alter the fact that the ruling ignored the standard mentioned in the first example for assessing where someone has their principal residence, namely their central living space. In the second ruling, the judge could also have considered that Y had not demonstrated that his central living space was in the holiday home. It is to be hoped that the highest court will eventually rule on this issue, so that it is clear what the correct standard is for assessing whether a holiday home can be considered a principal residence.

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This article is taken from 'Met Recht Geregeld' (www.metrechtgeregeld.nl), a product of FBN Juristen.

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