Interest deduction on home loans: how to correct your preliminary income assessment

The interest deduction (rentefradrag) does not mean you get the interest back. It means interest costs can reduce the total tax you have to pay. How big the effect is depends on your finances and your tax circumstances.

This guide explains the interest deduction from the ground up, without you needing to know the difference between capital income and tax value beforehand.

Short answer

As a rule, you can get a deduction for interest costs on loans you are liable for. This includes, among other things, interest on mortgage loans (realkreditlån) and bank loans for the home.

If you want the expected interest costs included in your tax on an ongoing basis during the year, they must be entered correctly on your preliminary income assessment (forskudsopgørelse). When the year is over, banks and mortgage credit institutions (realkreditinstitutter) normally report the actual interest costs to the Danish Tax Agency (Skattestyrelsen). You must still check your annual tax statement (årsopgørelse).^[1]

When you buy a home, the key fields according to the Danish Tax Agency's current guidance are:

Field numbers and rules can change. So always use the current help in TastSelv (the Danish Tax Agency's self-service system).^[2]

What is interest deduction?

When you borrow money, you pay interest to the lender. The interest is the price of having the money at your disposal.

Interest deduction means that deductible interest costs are included in the calculation of your tax. You do not get the interest cost back krone for krone. Instead, the deduction reduces your total tax according to the tax rules.

So there is a difference between these two amounts:

• The interest you pay to the bank or the mortgage credit institution
• The tax value of the interest deduction

If you pay 40.000 kr. in interest in a year, you do not get 40.000 kr. back. The 40.000 kr. are included in the tax calculation, and the effect depends on, among other things, your net capital income, your municipality and your other tax circumstances.

Which home loans can give an interest deduction?

The interest deduction can be relevant for interest on, among other things:

• Mortgage loans
• Bank loans for the home
• Priority loans (prioritetslån)
• Other loans where you are liable for the debt and pay deductible interest

The loan does not necessarily have to be secured by a charge on the home for the interest to be covered. What matters, among other things, is that it is a genuine debt that rests with you, and that the interest cost meets the rules.

Read the guide on the difference between mortgage loans and bank loans if you first want to understand why home financing often consists of several loans.

What do you not get an interest deduction for?

It is important to distinguish between interest and other payments on the loan.

You do not get an interest deduction for the repayment itself.

The repayment (afdrag) is the part of the monthly payment (ydelse) that reduces your debt. When you pay 12.000 kr. on a loan, the payment might for example consist of:

The tax rules for fees, commissions and other loan costs depend on the type of payment involved. So do not enter all the costs from the loan as interest.

Is the mortgage administration margin deductible?

The ongoing contributions paid to the mortgage credit institution for administration and the reserve fund, the administration margin (bidrag), are deductible according to the Danish Tax Agency's legal guidance. Certain deposits and one-off payments when a loan is set up are not necessarily treated the same way.^[3]

On your loan offer or your payment overview, interest and administration margin may appear as separate lines. The Danish Tax Agency's reporting and field help show how the amounts should be handled in your specific situation.

Also read Understand your loan offer if you are unsure about the difference between interest, administration margin, monthly payment and repayments.

The preliminary income assessment and the annual tax statement are two different things

The two statements are often mixed up.

The preliminary income assessment

The preliminary income assessment is a budget for the coming or current tax year.

It shows the Danish Tax Agency's expectations for, among other things:

• Your income
• Your deductions
• Your interest costs
• Your home
• Your property tax

The information is used to calculate how much tax is deducted on an ongoing basis.

The annual tax statement

The annual tax statement is the final account when the year is over.

Here the actual information is compared with what was paid in tax during the year. Banks and mortgage credit institutions normally report interest information, but you are responsible for checking that it is correct.^[1]

Why correct the preliminary income assessment?

If you take out a new loan or change an existing loan, you can enter the expected interest costs on the preliminary income assessment so they are included in your tax on an ongoing basis.^[1]

If the figures are not corrected, a possible deduction does not necessarily disappear. The actual reported interest may instead be dealt with on the annual tax statement. But your ongoing tax may have been calculated on the basis of an incorrect expected amount.

How to register the home purchase on the preliminary income assessment

The Danish Tax Agency's guidance describes this process for an owner-occupied home in Denmark:^[2]

1. Open the preliminary income assessment in TastSelv
2. Choose the section for purchased property
3. Find the home by address or property number
4. Enter the expected interest costs in the relevant fields
5. Enter the takeover date
6. Enter the moving-in date
7. Enter the ownership share
8. Calculate and check the result
9. Approve the changes

This is a general process. The specific options can change, and your situation may require other information.

Field 481: interest to banks and financial institutions

According to the Danish Tax Agency's guidance, field 481 is used for your share of interest costs to financial institutions and similar.^[1]

This could for example be interest on:

• The bank loan for the home
• A priority loan from the bank
• Other debt to a financial institution

Use the expected amount for the relevant calendar year, not necessarily the interest for a full, normal year.

If you take over the home on 1 October, the preliminary income assessment for the year of purchase should reflect the interest you expect to pay from the handover and for the rest of the year. Next year's preliminary income assessment will normally need to reflect a full year's expected interest.

Field 483: interest to mortgage credit institutions

Field 483 is used for your share of interest costs to mortgage credit institutions.^[1]

The amount can often be found in:

• The loan offer
• The final loan agreement
• The payment schedule
• Online banking or the mortgage credit institution's self-service
• An annual overview

Do not use the principal as the interest cost. The principal (hovedstol) is the nominal size of the loan, while the interest is the price of the loan.

Read more in the guide on the principal of a home loan.

Field 485 and other interest costs

The Danish Tax Agency also refers to field 485 for certain other interest costs.^[1]

Do not choose a field based on what seems most obvious. Use the field help in TastSelv, and check which lender and loan type is involved.

Takeover date, moving-in date and ownership share

The three pieces of information do not say the same thing.

Takeover date

The date of the handover is used, among other things, in registering the home purchase and the property tax.

Moving-in date

The moving-in date is the day you actually move in. It can differ from the takeover date.

Ownership share

The ownership share shows how large a part of the home you own.

If you own the home equally, the ownership share will typically be 50 per cent each. But an ownership share of 50 per cent does not automatically mean that all interest must always be split 50/50. The deduction also depends on who is liable for the debt and how the debt arrangement has been set up.

When you buy a home together

When you buy a home jointly, each person must check their own preliminary income assessment.

The Danish Tax Agency states that the ownership share is used to divide the property value tax (ejendomsværdiskat). The interest is divided by entering each person's share in the relevant interest fields.^[4]

Relevant questions include:

• Who is named as debtor on the loan?
• Who is liable to the lender?
• How is the debt divided between you?
• What amounts has the lender reported for each person?

If the figures on the annual tax statement do not match the civil-law debt arrangement, documentation and correction may be needed.

Specifically for unmarried cohabiting couples

Unmarried cohabiting couples are not automatically treated as spouses.

The Danish Tax Agency's legal guidance states that the interest deduction, as a rule, belongs to the person who is liable for the debt to the creditor. A person who is neither on the deed (skøde) nor a debtor on the loan does not automatically get a deduction just because they contribute to the monthly payments.^[5]

If you are unmarried and have an unequal ownership share, a different division of debt or internal agreements, it may be relevant to get individual tax and legal help.

If the interest rate changes

A preliminary income assessment is only an estimate.

The interest cost can change if:

• You have a variable rate
• The loan's rate is reset
• The bank's interest rate changes
• You refinance the loan
• You make extra repayments
• A loan is paid off
• You change the repayment profile or term

The Danish Tax Agency states that new expected interest costs can be updated on the preliminary income assessment when the interest on loans or mortgage loans changes.^[2]

This is particularly relevant for larger changes. Otherwise an old estimate may carry on through the rest of the year.

If you buy late in the year

If you buy a home on 1 November, you should not take a full year's expected interest and enter it on the preliminary income assessment for the year of purchase.

You should base it on the part of the year in which the loan and the interest costs actually relate to you.

A simplified example:

In the example, it is the expected 10.000 kr. for this year that is relevant for the preliminary income assessment in the year of purchase. The following year, the estimate will typically be based on a full year.

The actual amounts depend on the payout date, payment schedule and the terms of the loan.

Simplified example: how the deduction affects your tax

Imagine that you expect 50.000 kr. in deductible interest costs and ongoing mortgage administration margin in the calendar year.

The 50.000 kr. is not the amount paid out to you. It is included in the tax calculation.

The example shows the process, not the size of your tax saving.

How to find the right figures

You can typically find the information in:

• The mortgage loan's payment schedule
• The bank loan's payment schedule
• The loan offer
• The annual overview from the bank
• The existing information in TastSelv

Check whether the document shows:

• Interest for a calendar year
• Interest for the loan's first 12 months
• Interest for a specific payment period
• Interest before or after an interest rate reset
• Administration margin separately from interest

An amount for the loan's first 12 months is not necessarily the same as the amount for the calendar year.

Interest deduction is not the same as the net monthly payment

In loan offers and home calculations, you may see a monthly payment before and after tax.

The payment after tax is based on a calculated tax effect. It may be based on standard assumptions and is not necessarily identical to the effect you personally get.

So do not compare only the net payment. Also look at:

• The gross payment
• Interest and administration margin
• Repayments
• Outstanding debt (restgæld)
• The assumptions behind the tax calculation

Your disposable income (rådighedsbeløb) must be able to cover the actual payments and changes in your finances.

Your checklist after buying a home

• I have registered the new home on the preliminary income assessment
• I have checked the takeover date
• I have checked the moving-in date
• I have checked my ownership share
• I have found this year's expected bank interest
• I have found this year's expected mortgage interest
• I have separated interest and administration margin from repayments
• I have used the relevant calendar year
• We have checked the division between us, if there are several buyers
• I have saved payment schedules and loan documents
• I will check the annual tax statement when it arrives
• I will update the estimate if loans or interest rates change significantly

Common misunderstandings

I get the interest back in tax

No. The interest costs give a deduction that affects your tax calculation. You do not get the full interest cost back.

The interest deduction has the same value for everyone

No. The effect depends on your overall tax circumstances.

Repayments also give a deduction

No. Repayments reduce the debt and are not an interest cost.

The bank takes care of everything straight away

The bank and the mortgage credit institution normally report information to the Danish Tax Agency, but a new or changed loan must be entered correctly on the preliminary income assessment if it is to affect your ongoing tax. You must check the information yourself.

We own 50/50, so the interest is always automatically split 50/50

Not necessarily. Liability, the debt arrangement and reporting also matter.

The amount in the loan offer always applies to the calendar year

No. The document may show the loan's first 12 months or another period.

The interest deduction means the loan is cheap

No. The deduction reduces the net burden after tax, but interest and other loan costs are still an expense.

In short

The interest deduction lowers your tax. It does not give you the interest back krone for krone.

Once you have bought a home, you should keep particular track of:

1. Bank interest in field 481
2. Mortgage interest in field 483
3. Takeover date and moving-in date
4. Ownership share
5. The division between several borrowers
6. The difference between interest, administration margin and repayments
7. Whether the estimate fits the specific calendar year

Bring the figures together with the rest of your finances in the guide on your purchase budget when buying a home.

BoligKlar gives you a second pair of eyes and an overview. Tax rules and their effect depend on your situation. Use the Danish Tax Agency's current guidance or get individual tax help if your division of ownership or debt is unusual.

Frequently asked questions