Deduct early mortgage termination penalty from tax

Finance, Taxes, Banking, Insurance and Retirement
1

All.
My 10 fix rate mortgage has 6 more years till vesting.
I consider to sell the asset, so i can expect a 6 years of penalty (6 × the annual interest rate).

Question- is there a way to tax-deduct this penalty? Other option is to deduct it from the flat price (as “cost of sales”).
Have you encountered such cases?
Thank you.
Ariel

2

Depends on the bank, they should charge you the difference between your rate and the current mortgage rate.
Did you ask for a quote?

3

Maybe if they write it as an interest charge, then it might be deductible as interest as normal?

4

My 10 years fix is 0.9%, far above the current 0.25% (and probably 0% next month). So, it’s the full 0.9%×5 years.
I didn’t ask for a quote.. trying first to do my homework. :roll_eyes:

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5

If the bank approves in many cases the purchaser can assume the mortgage as part payment. There are fees, of course, but a lot less than the penalty

Talk to your lender.

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6

A classic ‘ask a tax expert’ question (or simply the gemeinde). On the one hand you’re not ‘paying a penalty’ you’re just paying the interest owed and that is normally tax deductable. On the other hand, it could be argued, you no longer own the property so the money owed could be said to be no longer mortgage interest on your home. Good luck !

7

Your rate is on par or better than what you can get today so, it will be worth to transfer it to the buyer.

8

For VD the answer is well-described by the canton. Perhaps the same principles apply elsewhere:

  • if you are selling, the penalty is an expense (necessary to sell), so it counts as a deduction for capital gains tax.
  • if you are keeping the property, the penalty is interest deduction, but only if you remain with the same lender.
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9

That is what I thought. My bank offers 1.2% now for 6 years.

10

My understanding is that the SNB will further reduce the rate.
Keep in mind that the Saron (previously Libor) is 0.45%.. yes, there’s always a risk of it going up, but it’s a vey nice alternative

11

And my understanding is that if you want out off your mortgage you have to compensate loss of interest income to bank assuming they will lend the returned debt again at current rates. I assumed if you have 6 years left, therefore today’s rate for a 6 year mortage is relavant.

But I might be wrong.

12

I remember there was a court case last time theSNB rate was negative because UBS refused to cut their mortgage rates below 1%

Do banks now offer below 1?

Don’t know what happened to the case

13

I got 0.9% for 10 years.
That was 4 years ago.

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14

You’re right..
But sometimes there’s an ovetall positive case.