Deduction for real interest expense
- Buying an apartment in Israel
Pursuant to Amendment 50 to the Real Estate Taxation Law, section 39A of the Taxation Law, real interest expenses paid by the seller to the bank will be recognized, provided that they are not deductible under the Income Tax Ordinance.
It will be noted that real interest expenses will be recognized according to section 39A, which constitutes a precise provision in this matter unlike section 39, which constitutes a general section.
The real interest is any amount repaid to the bank following the loan that has an addition to the principal but excludes any amount added to the principal due to the link to the consumer price index.
And excluding other payments, such as fines, arrears interest for those who are late in mortgage payments, and more.
The conditions for recognizing the real interest rate are that the expense is not recognized for income tax purposes and in addition, the loan was received close to the purchase or improvement of the apartment and was actually used for this purpose, as well as less common restrictions.
The law stipulates: “(a) In the sale of a right in real estate, a deduction is allowed for the purpose of determining the amount of the appreciation, in addition to the expenses allowed under section 39, real interest payments, if not deductible under the order paid by the seller, from 90 days after the day of sale, due to a loan, he received … “.
It should be noted that each ‘mortgagee’ receives a breakdown of the real interest payments in the annual statements sent by the Mortgage Bank, and it is advisable to keep these reports.
And again, this expenditure of real interest would not be recognized for the purposes of appreciation tax if the seller could have demanded recognition of this expenditure against rental income, even if he did not request that this expenditure be actually recognized.