If you are planning to buy a house or apartment in the Netherlands, you could be eligible for Dutch tax benefits, some specifically advantageous to expats.
Expatica explains the tax benefits of buying a house in the Netherlands.
Mortgage tax deductions in the Netherlands
Some expenses related to buying a house in the Netherlands and the closure of the mortgage are tax-deductible. These include the mortgage advice and mediation fees, the costs of the mortgage deed at the notary, the valuation of the property and a number of other costs.
However, the transfer tax is not deductible. The transfer tax is 2% of the purchase price, so if your house is worth €200,000, you cannot deduct the €4,000 transfer tax at the end of the year.
Interest payments on mortgages are also tax deductible, if your property is used as the primary residence and you are registered as a resident taxpayer. For instance, if you pay €1,000 interest per month and your income tax level is 40.85%, you receive back almost €410 per month! You can arrange to receive this every month by filling in a special form (voorlopige teruggaaf in Dutch; the form can be acquired from Belastingdienst, the Dutch tax authority), or as a lump-sum payment at the end of the year.
In the case of ground leases (erfpacht in Dutch), you rent the land which in fact remains the property of the government. Such is the case with some historical buildings or agricultural plots, for example. You effectively only obtain the rights to use the parcel, usually for 49 or 99 years, and that right can be sold or transferred, and does not end when the landlord dies. The costs for these lease holds are also tax deductible.
Some other tax deductible expenses are costs for the National Mortgage Guarantee, registration at the land registry (Kadaster in Dutch), interest paid during construction, and the penalty interest when refinancing an existing mortgage. However, the bank guarantee costs are not deductible.
An insurance indemnity, or term life insurance in the case you or your partner dies, is free of tax. When you or your partner pass away, your insurance policy will go into effect and pay out the contract directly to you. It is not considered a gift or inheritance, which are viable for taxes.
Dutch taxation on house value
The value of the house for the tax authorities and the local municipality are an estimate made by the local municipality. They base the value of your house on the sales prices of comparable houses in your neighbourhood, among other things. The value is called WOZ value, and will be used to determine the local taxes, as well as filling in the tax return.
Tax will be levied on the deemed rental value of the house. Compared to the deductions allowed for interest, this amount is very low. The value is based on a small percentage (in most cases, 0.7%) of the value of the house, estimated by the local municipality (WOZ value), and which will be used by the tax authorities.
For example, if your house has a value of €250,000, the tax authorities will add another €1,750 (0.7%) to your income. Thus, your income tax will raise by €1,750 x 40.85% = €715 to pay. Next to that you will receive a tax assessment from your municipality to cover costs like garbage collection, sewer maintenance and other public facilities. How high this is depends on the municipality itself but mostly it varies between 0.1 and 0.2% of the WOZ value.
Any increase in the value of your house is tax-free, as there is no capital gains tax. However, if you decide to move to a new home and you sell the current house for a higher amount than the total mortgage, it is recommended that you use that added value to buy the new house – otherwise you are not eligible for tax deductions on the extra amount.
Tax consideration for expat home-buyers
The 30% ruling may have a positive impact on your ability to get a mortgage, or the amount you might be eligible for. At least it has a very positive effect on the amount of income tax you pay – so it’s a good idea to consult with a mortgage adviser to see what advantages your 30% ruling status can grant your mortgage application.
If you leave the country and keep your house in the Netherlands, the interest tax deductions disappear as they are based on residency and living in the house. This means that if you decide to rent out your place and move abroad, the tax deductions go as well. The rent you receive will not be taxed either (tax rules from your new home country will apply, however). Keep in mind that renting out is usually not allowed by the mortgage providers.
Filing US taxes from the Netherlands
Despite the fact that every US citizen and Green Card holder is required to file a tax return with the IRS even when living abroad, many expatriates still fail to do so. Many are unaware of these obligations, thinking that as an expat they do not need to pay or file tax returns in the US. For more information and help filing your US tax returns from the Netherlands, contact Taxes for Expats and see our guide to taxes for American expats.