In Brief (TL;DR)
When you take out a mortgage to buy your primary residence, you can deduct not only the interest but also numerous ancillary costs, from the notary’s fee to appraisal and loan origination costs.
We analyze every single item in detail, from loan origination and appraisal costs to notary fees, to maximize your tax savings.
From loan origination fees to the appraisal, to the notary’s fee for the mortgage deed: discover in detail all the expense items that allow you to lighten your tax burden.
The devil is in the details. 👇 Keep reading to discover the critical steps and practical tips to avoid mistakes.
Buying a home with a mortgage is a fundamental step, but it brings a series of costs that go beyond the simple repayment of principal and interest. Fortunately, the Italian tax system provides the possibility of lightening this burden, allowing a portion of the ancillary costs incurred to be deducted from taxes. Understanding which of these charges offer a tax advantage is essential for optimizing your tax return and recovering valuable resources. This is not just an exercise in good financial management, but a right that allows you to turn an obligation into a savings opportunity.
The regulations, while clear, have several nuances. The main deduction concerns interest expense, but it extends to a series of ancillary costs directly related to signing the mortgage agreement. It is crucial to distinguish between costs related to the loan and those related to the property purchase, as only the former are deductible. Knowing this perimeter allows you to approach one of the most significant investments in a person’s life with greater awareness, combining the tradition of “brick and mortar” with the innovation of careful and informed financial management.
The Golden Rule: The Deduction for a Primary Residence
The most significant tax benefit is linked to mortgage loans taken out for the purchase of a primary residence. The law allows for a 19% deduction from IRPEF (Italian personal income tax) on interest expense and ancillary costs, up to a maximum amount of €4,000 per year. This translates into a maximum tax saving of €760 for each year of the mortgage. “Primary residence” means the property where the taxpayer or their family members habitually reside. This is an essential requirement: the property must be used for this purpose within one year of purchase. The deduction is available to the holder of the mortgage contract who is also the owner of the property.
Notary Fees: Only Those for the Mortgage
A common mistake is to think that all notary fees incurred for a home purchase can be deducted. In reality, the deduction is only allowed for the notary’s fee related to signing the mortgage agreement. Notary fees for the property purchase agreement, however, are excluded. Deductible costs also include expenses that the notary incurs on behalf of the client, such as those for registering and canceling the mortgage lien in the property records. To benefit from the deduction, it is essential to keep the notary’s invoice, which must clearly distinguish the costs related to the mortgage from those of the property purchase.
Loan Origination and Appraisal: The Allowable Bank Costs
When you apply for a mortgage, the bank initiates a series of procedures that generate costs, known as loan origination and appraisal fees. Loan origination fees are the costs the lending institution charges for analyzing and processing the loan application. The appraisal fee, on the other hand, covers the cost of the technician hired by the bank to assess the value of the property to be mortgaged. Both of these items fully qualify as deductible ancillary charges, as they are directly and necessarily linked to the disbursement of the mortgage for the primary residence. In this case as well, the documentation provided by the bank will certify the amount of these expenses, allowing them to be included in the tax return.
Other Deductible Ancillary Costs
In addition to notary, loan origination, and appraisal fees, the list of deductible charges includes other important items. Among these are the commission due to credit institutions for their brokerage activities and tax charges such as the substitute tax. The latter, applied at a reduced rate of 0.25% on mortgages for a primary residence, is fully deductible. Also included are less common costs, such as additional amounts paid due to exchange rate fluctuations for mortgages in foreign currency or any penalties for early loan repayment. Careful management of all these items can maximize the overall tax benefit. For a complete overview, it may be useful to consult a guide to deductions and tax benefits.
What You Can’t Deduct: Important Exclusions
It is just as crucial to know which costs do not entitle you to any tax benefit to avoid errors when filing your return. As already mentioned, notary fees for the property purchase agreement are excluded. The same applies to taxes related to the property transfer, such as registration tax, VAT, and mortgage and cadastral taxes. Another non-deductible expense is the cost of property insurance, such as fire and explosion coverage, even if required by the bank, because it is not considered a necessary expense for signing the mortgage agreement. Finally, simple installment collection fees are not deductible. Knowing these exclusions is essential for correctly filling out the 730 form. To learn more about the differences between various types of financing, it may be useful to read our guide on secured and unsecured mortgages.
Mortgages for Construction and Renovation
Tax benefits are not limited to purchases. Those who take out a mortgage for the construction or renovation of their primary residence can also benefit from a 19% deduction. However, in this case, the maximum expense limit on which the deduction is calculated drops to €2,582.28. To take advantage of the benefit, specific deadlines must be met: the mortgage must be signed within the six months prior to the start of the work or within the eighteen months following. Furthermore, the property must be designated as a primary residence within six months of the work’s completion. These time requirements are strict and require careful planning. If you are considering this option, our guide to purchase and renovation mortgages might be for you.
Conclusion
Navigating the landscape of tax deductions for ancillary mortgage costs may seem complex, but the right information turns this challenge into a real savings opportunity. The key is to clearly distinguish the costs related to the loan agreement from those of the property purchase. Expenses such as the notary’s fee for the mortgage deed, loan origination and appraisal costs, and the substitute tax are all items that help reduce your IRPEF taxable income. It is essential to meticulously keep all documentation, from the notary’s invoices to the bank’s certifications, to be able to justify every amount on your tax return. Approaching a home purchase with this awareness allows you not only to achieve a dream but to do so in a tax-smart way, making the most of every euro invested in compliance with current regulations.
Frequently Asked Questions
No, not all notary fees are deductible. You can only deduct the notary’s fee related to signing the mortgage agreement for the purchase of a primary residence. Notary fees for the property purchase agreement are excluded.
If the mortgage is co-signed, the maximum deductible expense limit of €4,000 (including interest and ancillary costs) must be divided among all borrowers. For example, with two co-signers, each can deduct 19% on a maximum amount of €2,000. An exception applies if one spouse is a tax dependent of the other: in that case, the one who claims the dependency can benefit from the deduction for both shares.
Yes, but under certain conditions. To be eligible for the deduction, you must designate the property as your primary residence within one year of the purchase date. Additionally, the purchase must occur within the 12 months before or after the mortgage is signed.
The maximum expense limit on which to calculate the 19% IRPEF deduction is €4,000 per year. This amount includes both the interest paid to the bank and all deductible ancillary costs, such as loan origination, appraisal, and notary fees for the mortgage deed. The maximum refund obtainable is therefore €760 (19% of €4,000).
No, expenses for property insurance, even if required by the bank to grant the mortgage, are not among the deductible ancillary charges. This is because they are not considered strictly necessary for signing the mortgage agreement itself.
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