NOT "ONLY" THE BROKER COMMISSION CAN BE DEDUCTED!
Tax deductibility of the early repayment fee in the event of mortgage dissolution (amtl. Publ.) Philipp Kruse April 28, 2017 Banking and financial market law, tax law
According to two rulings published today, dated April 3, 2017 (2C_1165/2014, 2C_1166/2014 [Canton Neuchâtel]; 2C_1148/2015 [Canton Zurich]), prepayment penalties arising from the premature dissolution of a mortgage are deductible as investment costs from real estate gains tax if the dissolution of the mortgage is inseparably linked to the sale of the property.
For income tax purposes, early repayment penalties can only be claimed as deductible debt interest if the cancelled mortgage is replaced by another one with the same lender.
In a case from the Canton of Zurich, the owners had prematurely dissolved the mortgages on a commercial building before it was sold in exchange for an early repayment fee. A corresponding deduction of the compensation when determining the real estate gains tax was denied to them. In another case from the canton of Neuchâtel, an early repayment fee was also charged before the sale of a property due to the early termination of the mortgage. This was not allowed as a deduction from the sellers' income tax.
The Federal Supreme Court upholds the appeal in the Zurich case. Since the mortgage was finally and completely cancelled immediately before the sale of the property and not replaced by a new mortgage, the early repayment fee is to be deducted from the property gains tax. This form of compensation fulfils the conditions for the acceptance of deductible "investment costs" (according to Art. 12 StHG), which must be taken into account when determining the real estate gain.
In the Neuchâtel case, the Federal Court rejects the complaint. If, as in the specific case, the dissolution is definitively carried out with a view to the sale of the property, early repayment penalties cannot be deducted as debt interest from income tax. A corresponding deduction can be justified if the dissolved mortgage is replaced by another mortgage with the same creditor. According to current case law, a double consideration of the early repayment penalty for both real estate gains tax and income tax is excluded in any case.
(From today's press release of the Federal Court.)