Tax deduction - Mortgage

In what cases can you get a deduction when building a house?

You can take advantage of the property deduction for housing construction if you:

1. Built a residential building

According to the law, a tax deduction is provided for the construction of a residential building with the right of citizens to register in it. If you have built a residential building without the right to register in it, you cannot count on a deduction (Letter of the Ministry of Finance of Russia dated May 3, 2017 N 03-04-05/27085).

Example: Ivanov I.I. purchased a plot for individual housing construction (IHC), built a residential building on it and received an extract from the Unified State Register of Real Estate. Ivanov can take advantage of the right to receive a property deduction for the construction of a house.

Example: Sidorov S.S. purchased a summer cottage and built a cottage on it, registering it as a residential building without the right to register in it. Sidorov S.S. will not be able to take advantage of the property deduction.

2. We purchased an unfinished residential building and completed it

In this case, the house you purchased must be designated in the purchase and sale agreement as an object of unfinished construction. Otherwise, you will be able to receive a deduction only for the costs of purchasing a house, but not for construction costs.

Example: Ivanov A.A. purchased a one-story residential building under a purchase and sale agreement. After the purchase, Ivanov reconstructed the house, adding a second floor. Ivanov will be able to receive a property deduction only in the amount of expenses for purchasing a house, and expenses for reconstructing the house will not be included in the deduction.

Example: Sergeev S.A. purchased under a purchase and sale agreement an unfinished construction project - an unfinished two-story cottage. After the purchase, Sergeev completed the cottage and registered ownership of it. Sergeev will be able to receive a deduction for both the costs of purchasing and completing and finishing the cottage.

What expenses can be included in the deduction when building a house?

The list of expenses that you can include in the tax deduction for housing construction is specified in Art. 220 of the Tax Code of the Russian Federation. These include:

expenses for the acquisition of land for construction;
expenses for the purchase of an unfinished residential building;
expenses for the purchase of construction and finishing materials;
expenses related to construction and finishing works or services;
costs for drawing up design estimates, as well as costs for connecting to utility networks and communications.

It is important to note that in order to receive a deduction, you need to document all expenses , that is, have on hand all the necessary receipts, checks, receipts and (or) other payment documents.

Compensation for construction

When recovering deductions for the construction of a private house, not all funds can be returned. The full list is specified in Article 220 of the Tax Code. The declaration takes into account the following expenses:

costs of acquiring a land plot for individual housing construction;
purchase of an unfinished building;
purchase of construction and finishing materials;
payment for services of individuals or legal entities;
money spent on ordering design and estimate documents;
means for bringing communications into the house (electricity, gas, water, sewerage).

For reference! A citizen cannot indicate these expenses in the declaration without documentary evidence: checks, receipts or other papers confirming payment must be attached to all calculations indicated in the documents.

There are a number of expenses for which you will not be able to receive income tax:

redevelopment of an already built house;
addition of additional buildings to the finished building, construction of a bathhouse, garage and other utility facilities;
repair or reconstruction of a finished, registered house;
installation of plumbing and other equipment.

There are cases when a citizen makes payments for the purchase of a home and at the same time begins repair work on it. This raises two main questions: can he return the money spent on building materials and finishing work? Is it possible to change the previously declared deduction amount?

The IRS allows these items to be added to the refund list, even if it has already been compiled. Until notification of receipt has been received, it is allowed to add additional items and change the deduction amount if the amount does not exceed the limit.

For example: citizen Ivanov built a house on a plot of land and registered it as residential. Expenses amounted to 1.5 million rubles. This year he filed a declaration for a personal income tax refund and received it. But in the same year he carried out repair work for another 500 thousand rubles and after its completion he submits a new declaration for the return of the deduction for repairs. The total declared amount is 2,000,000 rubles, from which he will receive his 13%.

You can get your money back not only for the construction of a house, but also for its repairs for any period.

For reference! Tax inspectors do not have the right to refuse payments for repair work, as this is contrary to the law.

What construction costs cannot be included in the deduction?

You will not be able to receive a deduction for expenses for:

redevelopment or reconstruction of an already built house;
reconstruction of an already built house (a floor or extension was added);
installation of plumbing, shower, gas or other equipment;
construction of additional buildings or structures on the site (for example, a garage, fence, bathhouse, barn, etc.)

Example: Sidorov V.V. built a residential building, a brick garage and a bathhouse on his site. Sidorov can only include in the tax deduction the costs of building and finishing the house.

When can I get a deduction?

The right to a deduction during the construction of a house arises only after registration of ownership of a constructed residential building , since according to paragraph 6, paragraph 3, Article 220 of the Tax Code of the Russian Federation, the obligatory document for obtaining a deduction is an extract from the Unified State Register of Real Estate (certificate of state registration of the right to a residential building) .

At the same time, you will be able to apply for a deduction to the tax authority only at the end of the year in which you became entitled to it. So, if you received an extract from the Unified State Register of Rights (certificate of registration of rights) for a residential building in 2021, then you can apply for the deduction in 2021.

Example: Ivanov I.I. began construction of a residential building in 2021. In 2021, Ivanov completed the construction of the house, in 2021 he registered ownership of the completed residential building and received an extract from the Unified State Register of Real Estate. In 2021, Ivanov can contact the tax authority and receive a property deduction for the construction of a house.

At the same time, it is not necessary to submit documents for deductions for the next year after registering the house. The right to a property deduction has no time limit, however, tax refund is possible only for the last three years preceding the year of filing documents for the deduction.

You can find out more about this information in the article: “When and for what years to submit documents to receive a property deduction.”

Example: Ivanov S.A. built a residential building in 2021 and registered ownership of it. In 2021 and 2019, Ivanov did not have official employment. Officially got a job in 2021.

Thus, Ivanov has the right to start using the construction deduction in 2021 and get a refund of the income tax he paid in 2021. If Ivanov does not completely exhaust the deduction, then he will be able to continue to use it in subsequent years: in 2022, return the tax for 2021, in 2023 - for 2022, etc.

If you have received an extract from the Unified State Register of Rights (certificate of registration of title) for a residential building, but do not want to wait until the end of the year, then you can take advantage of the opportunity to receive a tax deduction through your employer. Read more about this in the article “Obtaining a property tax deduction when purchasing an apartment/house through an employer.”

How to calculate the personal income tax refund amount

For those who do not want to wait until the coming year for the issuance of USRN documents, there is the possibility of applying for compensation through the employer. Until the allocated amount is finally exhausted, tax on the income received is not deducted from the employee’s salary. Rights to such a privilege will have to be confirmed annually by the inspectorate.

A claim for reimbursement can be submitted immediately after the corresponding right arises. Here you need:

Create a package of documentation (except for the declaration).
Write an application using the current form.
Hand over the papers to the tax authorities.
Receive confirmation (provided within 30 days).
Give the received document to the accountant at your place of work along with other papers.

Next, all calculations are performed by the employing company. From the month of filing the application, income tax ceases to be collected, i.e. the salary is issued without the usual 13% deduction. This continues until the end of the year or the deduction amount is exhausted.

If the payer changes jobs, he is allowed to receive a deduction at the new job. But recent changes in the Tax Code may lead to a change in this norm.

Previously, an employee had the right to compensation from one employer, even if he worked part-time in several organizations. In 2014, this norm underwent changes. It is now possible to receive a deduction at the same time in several organizations. The desired procedure for distributing compensation should be indicated in the application, which serves as the basis for the tax authorities to send information to employers.

If compensation is not used in the current year, the payer can receive the remaining amount from the employer in subsequent periods. At the beginning of each year, he will have to take another confirmation from the inspectorate, providing a certificate from the employer for the past year.

Important! Recent adjustments to the standards for providing benefits allow the employer to return the tax from the beginning of the year, regardless of the month of application. However, this approach causes serious difficulties for accountants.

The rules for calculating personal income tax refunds for the construction of a private house suggest compensation for expenses for housing construction and finishing within 13%. At the same time, a maximum limit has been established - 2 million rubles. Accordingly, it is possible to return no more than 260 thousand.

Special rules exist for residential premises being built with a mortgage. If the house was completed before 2014, the tax on interest costs will be refunded in full. In other situations, the tax deduction for building a house is limited to 3 million. This means a return of no more than 390 thousand.

If the person wishing to receive compensation is temporarily unemployed and has no income subject to taxation, the refund is resumed when such income becomes available.

Sometimes a situation arises in which the USRN extract has already been received, but the costs of finishing work continue. This nuance caused a lot of discussion; in the end, it was decided to provide reimbursement for expenses incurred after fixing property rights, even when a property tax deduction for new construction had already been received earlier. The amount of payments should not exceed 260 thousand rubles.

Important! In a year, no more funds are returned than were transferred to the budget in the form of taxes. Remaining funds are carried over to the next period until the full amount of payments is received.

This method provides the opportunity to return overpaid personal income tax from the moment the house is put into operation and all necessary documents are received. Personal income tax refunds can only be made for the completed calendar year. The entire tax can be collected only for 3 years. If the deadline is missed, you will be able to exercise your right only with repeated property costs.

This method implies the opportunity to receive a deduction immediately after the right to it arises, without waiting for the end of the calendar year, as in the first case. But it will not be possible to receive it at the same time in one amount, since it will be provided monthly in the form of the amount of taxes deducted by the employer from wages in favor of the state. To apply for a deduction in this way, you must proceed as follows:

Request a 2-NDFL certificate from your employer for the current year. This contains all the information about the tax agent through whom you plan to exercise your right.
Fill out a 3-NDFL declaration; it is filled out in the same way as when returning overpaid taxes. It is drawn up for the current year, and all information is copied from a certificate from the employer. It must reflect the total amount of expenses and calculate the required deduction amount. You can see an example of the design and procedure here.
Write an application to confirm your right. This document is filled out in a free format and written similarly to the first method. There will be no differences in this document, so we fill it out according to the sample presented in this article.
Write an application for notification of your right. It is this document that the employer requires as confirmation that the person is entitled to receive a specific deduction amount. It is drawn up in free form. The procedure for filling it out is presented in this article.
Write an application to divide the share of the deduction between the spouses; this document will be required only if both spouses own a jointly built house and will jointly receive the deduction. The application will need to indicate in what percentage the spouses wish to receive this deduction. You can learn the procedure for filling out this application here.
Collect the required package of documents listed in this article above. With the help of these papers, tax authorities check whether the applicant has the right to receive a tax deduction in the declared amount.
Submit all papers to the Federal Tax Service. In this case, you can submit not only at the place of registration of the taxpayer, but also at the location of the employer's legal entity. The applicant can independently choose the Federal Tax Service authority where it is more convenient for him to send the papers.
Wait for notification within 30 days. It must be sent on time to the address specified by the applicant, or issued by the local FMS office.
Write a statement to the employer with a request to make a deduction in a specific amount due to the costs incurred for the construction of a residential property. It is necessary to indicate from which month this deduction should be made and attach the notification received from the Federal Tax Service.
Receive a monthly deduction along with your salary during the calendar year.

We invite you to read: Joint and common shared ownership: what is the difference?

After the end of the year, you will need to re-submit an application to the Federal Tax Service to receive a new notification. All the same documents must be attached to it. When calculating the remaining deduction amount, you must subtract the deduction received last year. To do this, a 2-NDFL certificate must be provided for the previous calendar year. And then, based on the remaining amount, the tax authorities will confirm the right to deduction.

In addition, if you received a deduction through your employer for all 12 months, then after the end of the year you have the right to apply for a refund of overpaid tax for those months when the employer did not make a deduction. Typically, the first 2-3 months of the year are spent receiving notification from the tax authorities for the employer, so he only makes the deduction for 9-10 months. And at the beginning of next year, you can return them by simultaneously submitting an application for a refund of overpaid tax along with all documents.

List of documents for obtaining a deduction

To apply for a property tax deduction for housing construction, you will need:

declaration 3-NDFL;
extract from the Unified State Register of Real Estate for a residential building;
copies of documents confirming the costs of building a house. In most cases, these documents will be:
for the services of organizations - a copy of the contract with the construction company, copies of payment orders (or for cash payments - copies of cash receipt orders, receipts);
for the purchase of materials - copies of receipts (sales receipts);
tax refund application;
documents confirming the tax paid (certificate 2-NDFL);
a copy of an identity document;

If you receive a deduction for interest on a construction loan, you must also attach:

loan agreement;
certificate of deducted interest on the loan.

Documents for registration of deduction

As soon as your home has become residential, you have every right to submit a 3-NDFL declaration to the tax office for a tax refund. As with the deduction for an apartment, the declaration is submitted after the end of the tax period (clause 7 of Article 220 of the Tax Code of the Russian Federation).

If the title documents for the house are received in 2021, then the right to deduction will appear in 2021. But you will be able to file a declaration only in 2021.

To apply for a deduction, prepare the following copies of documents:

documents on ownership of the house and land (certificate or extract from the Unified State Register of Real Estate);
contract for the sale and purchase of a house and land plot (if you are applying for a deduction for the plot);
payment documents for the purchase of a house and land;
payment documents for the purchase of a house, land, construction and finishing materials (bank statements, checks, receipts, acts on the purchase of materials, etc.);
mortgage agreement and a certificate from the bank about the interest paid (if you are buying a house with a mortgage).

Of the originals, you will need a passport, a 2-NDFL certificate for the year the deduction was issued (given by the employer, or uploaded on the website nalog.ru) and a completed 3-NDFL declaration.

Deduction amount

The amount of deduction for new construction or completion of an individual residential building is determined according to the same principle as in other types of property deduction. (see Amount of tax deduction).

You can return up to 13% of the total amount of expenses for construction and finishing of housing, while the maximum amount for deduction should not exceed 2 million rubles (i.e. you can return a maximum of 2 million rubles x 13% = 260 thousand rubles) .

For each year, you can return no more than you transferred to the income tax budget, while the remainder of the deduction is transferred to the next year until the deduction amount is received in full.

Example: In 2021 Sergeev A.A. built a residential building. The costs of building and finishing the house amounted to a total of 10 million rubles. Sergeev has the right to receive a property deduction in the amount of construction costs, but not more than 2 million rubles, since this is the maximum deduction amount.

If Sergeev is officially married, then his wife will also be able to claim a deduction in the amount of 2 million rubles (for more details, see the article “Features of tax deductions when purchasing housing by spouses”).

In the case of housing construction with a mortgage before January 1, 2014, income tax on expenses for paying mortgage interest is refunded in full without restrictions.

If a mortgage loan for construction was issued after January 1, 2014, then the interest deduction is limited to 3 million rubles. That is, you can return a maximum of 3 million rubles from mortgage interest. x 13% = 390 thousand rubles.

Income tax refund for the construction of a private house

To avoid any difficulties, the documents must indicate “residential building”. Moreover, the premises must correspond to this name, that is, have main premises and utility rooms. It is worth remembering that property benefits can be issued not only for a building, but also for a land plot.

We recommend reading: Distribution of average per capita income in the Rostov region

In general, a taxpayer is entitled to a refund of 13% of the costs incurred. At the same time, the maximum amount with which personal income tax is reimbursed cannot exceed 2 million rubles. That is, no matter how much it costs the taxpayer to build a new house, the most he can return is 260 thousand Russian rubles. But if the actual cost of housing was less than 2 million, the missing amount can be “raised” next time, during the construction of another housing. Thus, you can build as many houses as you like, but the total amount of personal income tax returned will not exceed 260 thousand.

Deduction for the cost of paying interest on loans (mortgages) for construction

If you have taken out a targeted loan for the construction of a residential building (this must be stated in the loan agreement), then you have the right to receive a deduction for the loan interest paid.

Example: Petrov A.V. took out a mortgage loan for the construction of a residential building. Petrov has the right to claim a deduction for both construction and mortgage interest costs.

You can read more about the deduction for loan interest in the section “Deduction for mortgage interest.”