Return of mortgage interest: step-by-step instructions

Legislative nuances of the return of mortgage interest in 2022

The main legal act of the Russian Federation regulating relations between the state and taxpayers is the Tax Code. Chapter 23 contains several articles that describe in detail the conditions under which a citizen has the right to compensation for expenses incurred by him from funds paid to the budget in the form of taxes.

According to the Tax Code of the Russian Federation, six types of deductions are legally established, each of which has its own characteristics:

• standard;
• social;
• investment;
• property;
• professional;
• when carrying forward losses from transactions with securities to future periods.

Citizens who have entered into a mortgage lending agreement with a bank receive the right to return taxes transferred to budget revenue on the basis of Article 220 of the Tax Code of the Russian Federation, which talks about property deductions. An important nuance is that there are two calculation options depending on the date of purchase of real estate:

• until 2014;
• after 2014.

Paragraph 3 of Article 220 of the Tax Code provides for the return of personal income tax on expenses for the purchase of a house, apartment, plot, etc., and paragraph 4 – on expenses for paying interest to the bank. In the first case, the maximum amount of spending on which the deduction is calculated is 2 million rubles, and in the second - 3 million rubles. This means that the citizen will receive 260 and 390 thousand rubles, respectively (13% of the specified maximum amounts).

Thus, the law provides for the possibility of obtaining a deduction if the borrower spent funds for the purpose of:

• repayment of interest on a mortgage or target loan, at the expense of which a residential house, apartment, room, land plot was built or purchased;
• repayment of interest on loans aimed at refinancing previous loans, also used for the purchase of residential real estate or a plot of land for construction.

Features of refunds from the legal point of view

The legislative norm requiring the return of funds to the taxpayer who took out a mortgage loan is fixed in the provisions of Chapter. 23 of the Tax Code of the Russian Federation and a number of separate acts explaining the process of obtaining compensation from the state.

As established by law, a citizen who purchased real estate with the help of a mortgage loan has the right to apply to the Federal Tax Service to return the money from part of the funds paid in the form of income tax (i.e., in the amount of 13% of total income for the year). Mortgage repayment is limited by 2 parameters: the amount of interest paid and the tax deducted. To compensate for the cost of interest on a loan to purchase an apartment, you will need to contact the Federal Tax Service and agree on the possibility of payment by submitting documents and declarations.

The property deduction is drawn up in accordance with the provisions of Art. 220 of the Tax Code of the Russian Federation, allowing you to receive compensation from the budget when purchasing any type of housing - a house, an apartment, regardless of the source of financing. In addition to compensation for expenses related to the transaction itself, a citizen has the right to receive compensation for interest.

The borrower will be able to use the deduction for the first time after the end of the first reporting year in which the transaction was registered.

There is no need to immediately contact the Federal Tax Service. The law allows for filings over a subsequent three-year period. Sometimes it’s easier to apply for deductions for 3 periods at once in one application. The frequency of applications is regulated by the borrower himself.

An important limitation is that buyers of real estate located within the Russian Federation can reimburse the 13 percent tax, provided they purchase housing from third parties. Transactions with relatives are considered questionable and do not allow for deductions. There are other restrictions regarding the maximum amount and category of citizens who have the right to deduct.

Who is entitled to a mortgage interest refund?

To get back part of the taxes paid to the state, the mortgagee must meet several requirements: be a resident of the Russian Federation, have official employment and “white” income, 13% of which goes to the treasury. As a rule, these are hired employees of state, municipal and commercial organizations and enterprises, as well as individual entrepreneurs who submit a declaration to the fiscal authority in form 3-NDFL, that is, who do not apply special tax regimes. Pensioners who stopped working and, accordingly, paying taxes, no more than three years ago are also entitled to a deduction.

For real estate purchased by spouses in a registered marriage, the procedure for calculating the amount of the deduction differs depending on whether the housing was purchased before January 1, 2014 or after. It was from this date that changes to the legislation came into force, according to which the tax deduction was no longer tied to the share of property. In order to receive a refund of personal income tax paid in the maximum possible amount, it is important to take into account the specific circumstances of each family.

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How many times can you use your mortgage interest refund?

Since 2014, another change to the Tax Code of the Russian Federation came into force: deductions for expenses on purchasing housing and expenses for paying interest on a mortgage were divided. You can get your taxes back when purchasing one or more real estate properties, but not more than 2 million rubles. What is the situation with the deduction for interest? Does the law provide for the right of the mortgagee to return part of the funds paid to the bank for the second apartment?

Clause 8 of Article 220 of the Tax Code of the Russian Federation states: “The property tax deduction provided for by subclause 4 of clause 1 of this article can be provided only in relation to one piece of real estate.”

In addition, paragraph 11 of Art. 220 states that repeated provision of tax deductions provided for in subparagraph 4 of paragraph 1 of Article 220 is not allowed.

This means that it is possible to return part of the interest paid to the credit institution on a mortgage loan only in relation to one property. Even if you contributed less than the 3 million rubles established by the Tax Code as interest, you will not be able to “get” the required 13% when purchasing another apartment, room or plot.

It is important to understand that the fiscal authorities cannot return more than what was received from you in the form of personal income tax for the past year. That is, if the amount paid to the bank exceeds the amount of taxes withheld from wages, the balance is carried over to the next year. In this case, pensioners receive a refund from funds transferred to the budget in the previous year. In addition, simultaneous deductions for other reasons are taken into account, for example, for the return of part of the funds spent on treatment. Thus, you can receive mortgage interest reimbursement for several years until you reach the limit of 390 thousand rubles.

If before 2014 an apartment was already purchased with a mortgage, and 13 percent of the interest paid to the bank for using the loan was returned, can the borrower count on a deduction when purchasing another property?

2014 was the year of important changes to the Tax Code of the Russian Federation concerning the procedure for calculating and paying property deductions. To better understand the essence of innovation, let’s look at specific examples.

Let's say an apartment was purchased in 2012, and the owners exercised their right to a property deduction, including mortgage interest. If after January 1, 2014, another home is purchased, then filing a second declaration in the hope of again returning part of the funds paid to the bank in the form of interest is pointless. This is directly stated in the letter of the Ministry of Finance of the Russian Federation dated April 2, 2015 No. 03-04-05/18240.

Nuances of interest reimbursement

Russian tax legislation strictly regulates the process of processing compensation for a mortgage. The Tax Code of the Russian Federation (clause 4 of Article 220) establishes a maximum limit on the amount of deduction for transactions worth up to 3 million rubles (if the housing costs more, the 13 percent refund rate is calculated based on the maximum value). Thus, according to the law, each taxpayer has the right to receive compensation of up to 390 thousand rubles for a mortgage in total for all years. However, in practice, it is not always possible to fully reimburse the amount, since returning 13% from the mortgage is possible only under the condition of a long lending period and a high salary.

If wages are low, modest amounts are paid into the budget each year, which means the compensation will be small. The greater the confirmed income and contribution to the budget, the greater the chance of reimbursing the maximum amount.

If the loan agreement was signed before 01.01. 2014, then the upper threshold of 390 thousand rubles is removed - you can compensate the entire amount within thirteen percent of contributions to the budget for the year.

Mortgage interest repayment period

There are often cases when taxpayers find out that they are entitled to a tax deduction on interest, not immediately after purchasing housing with borrowed funds, but after some time. In this regard, they have a question about how long the right to issue a personal income tax refund remains. This topic is also relevant for those apartment owners who currently do not have legal grounds for a property deduction, since they do not pay taxes to the budget at a rate of 13%. Among them are pensioners, the unemployed, and women on maternity leave.

The Tax Code in Article 220 does not establish a time limit after which the taxpayer is deprived of the opportunity to issue a refund of interest on the mortgage. This means that there are no time restrictions for this property deduction. The buyer of real estate can immediately exercise his right to a refund, or he can do this several years later, when he begins to transfer personal income tax to the budget.

Paragraph 7 of Article 78 of the Tax Code of the Russian Federation states that an application for offset or refund of the amount of overpaid tax can be submitted within three years from the date of payment of the specified amount. It follows from this that the time limit for applying for a tax refund on mortgage interest is also three years, and you cannot include a year in which the right to deduction has not yet arisen. An exception to this rule applies only to pensioners: they can return taxes withheld from them for the years preceding the registration of the mortgage.

Let's look at this situation using an example:

The apartment was purchased using borrowed funds in 2014, but the owner only learned in 2022 that the state was returning part of the interest on the mortgage to taxpayers. The law does not establish a statute of limitations for tax refunds, so he has every right to submit a 3-NDFL declaration for 2016 to the tax service at his place of residence. Earlier periods (2014 and 2015) cannot be used due to the three-year limitation on the return of mortgage interest.

How to apply for a tax deduction for mortgage interest paid

There are two ways to apply for a property deduction:

• returning previously paid personal income tax until the full deduction amount is exhausted;
• without paying personal income tax from income - until the deduction is exhausted.

In the first case, the taxpayer only needs to contact the Federal Tax Service Inspectorate, and in the second case, first the Federal Tax Service Inspectorate, and then his employer.

How to return personal income tax through the Federal Tax Service

To get a refund of part of the income tax paid, you must wait until the end of the year in which ownership of the home arose, and then contact your tax office. In this case you should:

• fill out a tax return (form 3-NDFL) and prepare the required package of documents;
• write an application for a refund of the tax paid to the budget, indicate in it the bank account details for the refund;
• submit an application, declaration and other supporting documents to the tax office (due to the pandemic, from March 30, 2022 and until further notice from the authorities, this can only be done online, through the taxpayer’s personal account);
• wait for the tax authorities to receive funds into the account, taking into account the fact that the tax authorities are given 3 months to conduct a desk audit, and then another 1 month to transfer the money to the taxpayer (clause 2 of Article 78, Tax Code of the Russian Federation).

When claiming a deduction for mortgage interest in 2022, you need to take into account that the 3-NDFL tax return for 2022 is submitted in an updated form (Order of the Federal Tax Service of Russia dated October 3, 2018 No. ММВ-7-11/569, as amended by Order dated October 7. 2019 No. ММВ-7-11/ [email protected] ).

If during the year a citizen did not have income that he is required to declare, he can submit 3-NDFL in order to receive a tax deduction for an apartment on a mortgage (interest) at any time. If there was such income, and it is included in the declaration, it is submitted no later than April 30 of the year following the reporting year (Article 229 of the Tax Code of the Russian Federation). But in 2020, due to the coronavirus epidemic, this period was extended by 3 months - until July 30, 2022 (Government Decree No. 409 of 04/02/2020).

Examples of mortgage interest repayments

1. Typical case of filing a deduction . You bought an apartment in 2022, using financial assistance from the bank, and immediately registered ownership. The loan amount was 1 million rubles, the term was 10 years, the interest rate was 11%. The monthly annuity payment is 13,755 rubles, of which 9,166 is interest. This amount becomes smaller with each installment, while payments to repay the principal debt increase. The total amount of interest on the loan is 653,000.14 rubles. We multiply it by 13%, we get 84,890.01 rubles, this is exactly the amount of the deduction due to you.

The borrower's salary allows him to make monthly payments, so it does not matter much. We will assume that the property deduction for the purchase of residential real estate has already been applied previously; this right cannot be used again.

It is not possible to refund personal income tax on mortgage interest in advance, before the borrower’s funds arrive in the bank account. This is contrary to common sense, because there is no complete certainty that the loan will be fully repaid, just as there is no certainty that the mortgage will not be repaid ahead of schedule, saving %.

2. Tax deduction for mortgage interest for several years . In 2016, you entered into an equity participation agreement with the developer; funds from a mortgage loan were used for payment (2 million rubles for 10 years at 11%). The property was registered in 2022. Annuity payments, 27,550 rubles. At first, about 18,000 of them are interest, gradually their share in the payment decreases, and payments to repay the principal debt increase. According to the loan agreement, the amount of interest for the entire period of its validity is 1,036,000.27 rubles. The taxpayer is entitled to a personal income tax refund in the amount of 169,780.03 rubles (1,306,000.27 * 13%).

If the borrower’s salary is about 50,000 rubles per month, then the annual deduction is expected to be 78,000 rubles. If the amount of income has not changed during the previous three years and is expected to remain the same for the term of the mortgage agreement, then the taxpayer is entitled to a lump sum refund of mortgage interest for the three previous years. During this period, despite the fact that ownership of the apartment had not yet been registered, payments under the loan agreement were regularly made. To return overpaid tax, 3-NDFL declarations for 2016, 2022, and 2022 are submitted. In the following years, documents for deduction are submitted annually or after three years.

This example also does not take into account a property deduction in the amount of 260 thousand rubles for the purchase of housing.

The taxpayer can return the overpaid tax only after signing the transfer and acceptance certificate and registering the ownership of the property with the authorized government bodies.

What documents are needed to return mortgage interest?

An application for a refund of mortgage interest at the tax office will be processed quickly and without comments if you pay attention to the collection and preparation of documents. Required package includes:

• personal documents of the taxpayer (passport and TIN);
• property purchase and sale agreement;
• document confirming ownership of real estate;
• declaration (form 3-NDFL);
• mortgage payment receipts and certificate of current debt;
• certificate in form 2-NDFL (original);
• application for refund;
• loan payment schedule (as an appendix to the agreement);
• a certificate from the bank with the current account number for crediting.

From the above list it is clear that partial reimbursement of funds spent on the purchase of residential real estate is available to adult citizens of the Russian Federation who are officially employed and pay personal income tax.

However, the applicant for the deduction does not have to be an employee. Individual entrepreneurs who are subject to basic taxation and pay 13% of their income to the state budget have the same right to return these funds in the form of a mortgage interest deduction.

When housing is shared ownership of spouses, a marriage certificate (original and copy) is added to the list of documents.

If a tax deduction is expected to be received for past years, but the citizen does not have documents confirming regular payments, then the tax office will accept a bank account statement for consideration.

The amount of personal income tax refund on mortgage interest is calculated by employees of the fiscal authority based on the submitted documents and information on the payment of personal income tax. If there are no claims against the applicant, the deduction due to him is transferred to his account.

The above list of documents is not exhaustive; if it is necessary to clarify the circumstances of the case, additional information may be required. Most often this happens if a credit institution is declared bankrupt and restructured during the term of the agreement. This means that another legal entity becomes the creditor, therefore, documents on the assignment of claims are required.

Property deduction funds can be credited to the recipient’s card or issued at the cash desk.

What documents will be needed

To obtain the right to deductions, you must prepare and submit to the Federal Tax Service a set of documents consisting of originals and approved copies.

Originals

Tax return 3-NDFL
You can prepare it in the following ways:

• form on the tax website and fill it out yourself;
• fill out and submit through a special service of the Federal Tax Service;
• and install the assistant program (Windows only);
• seek help from a law firm, where a qualified specialist will take into account current legal requirements and the specifics of your situation.

Certificate of income 2-NDFL
This form must be requested from the accounting department of the employing organization.
It contains information about the income received and the tax that the employer withheld and transferred on behalf of the taxpayer. If a person has changed his job or worked part-time during the year, he should request information from all organizations. Application for deduction The
application form is approved by Appendix No. 8 to the Order of the Federal Tax Service No. MMV-7-8 / [email protected] dated 03.03.15 and includes data on the amount of compensation and details of the individual’s current account for its transfer.

Copies

In addition to the above forms, it is necessary to prepare originals and copies of your passport, payment documents and a number of other documents, the composition of which will depend on the specifics of the transaction.
Documents confirming payment:

• receipts for cash receipts;
• bank statements;
• sales and cash receipts;
• acts on the purchase of building materials from individuals.

For a residential building, apartment, room, share in them:

• contract of sale;
• extract from the Unified State Register of Property Rights;
• documents on the transfer of payments for apartment renovation, if it was put into operation without finishing and cost less than 2 million rubles.

For a shared construction project:

• agreement for participation in shared construction;
• transfer and acceptance certificate signed by the developer and owner.

For a land plot:

• certificate of state registration of ownership of the site;
• an extract from the Unified State Register of Individual Entrepreneurs on the state registration of ownership of a residential building built on the site.

When purchasing real estate in the name of a child or ward:

• child's birth certificate;
• decision of the guardianship and trusteeship authority.

For a tax deduction on mortgage interest:

• an agreement with the bank, which states that the purpose of the loan is housing;
• certificate of interest paid;
• documents confirming the right to receive a deduction for the property.

Mortgage interest repayment procedure: main stages

The actions of the taxpayer, claiming compensation for part of the interest paid to the bank, coincide with those that he carried out when filing a deduction for the principal amount of the purchase of a home.

To receive back overpaid personal income tax, the borrower must:

• collect a package of documents, thanks to which the tax service will verify his right to a refund from the budget;
• submit an application to the tax office, which provides detailed information about the transaction for the acquisition of residential real estate and the mortgage agreement with the bank;
• wait for the results of the review of the submitted documents by the Federal Tax Service employees responsible for working with individuals;
• receive funds into your current account.

This procedure is general for applying for a deduction when buying an apartment, and if you want to return personal income tax for interest on the mortgage. The only difference is the need to indicate that the purpose of the appeal is to return part of the remuneration paid to the bank for the loan provided. You cannot do without evidence of depositing funds to pay off interest on a housing loan.

When refinancing a loan, there are some features of applying for a refund:

• when the borrower reimburses interest on the principal amount of the debt, repeating the procedure with refinancing is impossible: according to the law, only one request is approved;
• refinancing should be targeted exclusively for the purchase of residential real estate. Having an amount for personal needs may be a reason for refusal;
• The limitation of the tax base to 3 million rubles also applies in the event of concluding an on-lending agreement.

It is very difficult to independently understand all the nuances of return and deduction of mortgage interest. Federal Tax Service employees provide assistance to citizens free of charge, as part of their direct official duties, so if you have any questions, you should contact the nearest department.

How to get deductions for an apartment and for mortgage interest at the same time

Let us say right away that this is an atypical situation. This need arises if the taxpayer missed the deadline for filing a return. Another option is to purchase an object under an equity participation agreement, as a result of which ownership rights arise later than the borrower’s relationship with the bank began. In addition, citizens whose income is much higher than the average can apply for a simultaneous return of personal income tax on the apartment itself and on the %. In the three years preceding registration of property, they must pay enough taxes so that the amount exceeds the standard deduction for the purchase of housing (260 thousand rubles) and there is still a balance for mortgage interest.

As a rule, the personal income tax refund is processed first under clause 3 of Art. 220 of the Tax Code of the Russian Federation, and when it is exhausted, an interest deduction is issued.

Let's look at an example.

Let's assume you bought an apartment for 2 million rubles. in 2022 and immediately registered ownership. You borrowed the missing funds from the bank - 1 million for 10 years at an interest rate of 11%. The monthly annuity payment amounted to 13,775 rubles, of which interest was 9,166. Every month the amount of interest decreases, the contribution to repay the principal debt increases.