What to do with surplus value?
Are you paying off your mortgage? Then, there is a good chance that you realized surplus value! Surplus value arises when the value of your house is higher than the remaining mortgage (or another loan). From a tax point of view, you should pay attention when spending this surplus value. In this article, we explain it to you.
Calculate surplus value
Did you sell your old house? Time to calculate the surplus value! Actually, this is a simple calculation: the selling price minus the remaining mortgage and selling costs. Examples of selling costs are valuation, advertising costs, and any broker’s commission. But why is this amount so important? Fiscally wise, you must use this amount when buying a new house or renovating one.
Additional credit regulation
Did you sell your house and are you planning to buy a new one? The surplus value determines the height of your mortgage; this is also called the additional credit regulation. The additional credit regulation is a hot topic on which we receive lots of questions. According to the regulation, you have to put the surplus value into your new house if you still want to deduct the full interest. We explain it with an example:
Example additional credit regulation.
Imagine you want to live a little more spacious. That is why you sell your house for € 600,000 and buy another place for € 750,000 in return. The remaining mortgage on your house is € 150,000, and the selling costs came up to € 5,000. So there is a surplus value of € 445,000. We use this amount to calculate the height of your new loan. The interest is deductible up to a loan of (750,000 – 445,000) € 305,000.
Calculate the home equity reserve
The home equity reserve (in Dutch: eigenwoningreserve) arises from the surplus value. Did you sell a house for the first time? Then, this surplus value is equal to the home equity reserve. However, it is also possible that you already sold a house and you are selling a new house. In this case, you add the surplus value of the new sale to the home equity reserve. With the following example, we will explain the home equity reserve:
Example home equity reserve.
In this example, we build upon the sales price of the previous example. Therefore, the home equity reserve is € 445,000. But in this case, you choose not to live more spacious, but smaller and buy an apartment for € 350,000. According to the additional credit regulation, you are not allowed to deduct (mortgage) interest. If you buy the new apartment with the surplus value, the remaining amount of € 95,000 will be regarded as home equity reserve for the next three years. Do you choose to renovate your house or buy a new one in these three years? In that case, you should do it with the home equity reserve.
How to lower your home equity reserve
Besides the fact that you can use the home equity reserve to buy a new house, you can also lower the home equity reserve by:
- buying off ground lease rights;
- financing the renovation or (major) maintenance of your house.
We are happy to help!
Do you choose to buy a new car with your surplus value? Of course, that is entirely up to you. However, think carefully about this decision or engage a financial advisor! Do you want to know if your mortgage interest is deductible? Or do you have other tax-related questions? We are happy to help you! Please, feel free to contact us using the information below!
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