PERSONAL LOANS

Personal loans: can I deduct debt interest from my taxable income?

Debt interest can be deducted from your taxable income. This also includes interest on personal loans. We show you how deductions work.

02.05.2023

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1.Can I deduct debt interest from my taxable income?
2.What can I deduct?
3.Deducting interest on debt from taxable income: how it works
4.Other deductible costs
5.Conclusion

1. Can I deduct debt interest from my taxable income?

Yes. Private individuals can deduct interest paid during the tax year from their taxable income in the case of direct federal tax and in the case of cantonal income tax. An upper limit of 50,000 francs plus gross income from private assets applies.

This regulation also includes interest rates of private loans. The allowance of 50,000 francs alone is usually sufficient to fully deduct the interest accrued on one or more loans. In many cases, the chance to deduct interest on debt is very worthwhile.

Tax saving example:

The interest on a personal loan of 25,000 francs with a term of 36 months can quickly amount to around 1,800 francs in the first year. With an assumed tax rate of 10%, you could achieve tax savings of at least 180 francs.

2. What can I deduct?

The interest on the debt does not correspond to the sum of the amounts of money that you as a private borrower transfer to the lender's account each month. These monthly payments include an interest and a repayment share. Only the interest can be deducted from your taxable income. Repayment of the loan is not tax deductible. 

Loan costs per month = amortization share + interest share

It's also worth knowing that in the case of private loans, the deductible amount usually gets smaller every year. This is because the interest portion of the monthly instalment decreases over the loan term, while the repayment portion increases. Accordingly, the debt interest deductions shortly before the loan is fully repaid are significantly lower than at the beginning of the loan term. Our loan calculator shows what this might look like.

3. Deducting interest on debt from taxable income: how it works

The deduction is simple: in January, you will receive an interest certificate from the lender. This includes both the deductible debt interest and the remaining outstanding debt on 31 December. You enter this information in the debt register of the tax return under the heading "Private debts" for each loan. Then transfer the respective total to the main form.

After that, all you have to do is remember to add a copy of all interest certificates to your tax return. If you have not received an interest statement, you can request it from the relevant institution.

Step-by-step instructions

  1. In January, you will receive an interest certificate from your lender. If you have not received an interest statement, you can request it from your lender. Increasingly, credit providers are storing these documents in a digital customer portal.

  2. In the debt statement section of your tax return, you'll find a section entitled "Private debts".

  3. Here you enter the amounts of the deductible debt interest, as well as the sum of the outstanding residual debt.

  4. Make a copy of all interest certificates and attach them to your tax return.

4. Other deductible costs

The deduction of debt interest also applies to private loans, such as those from family members or friends, as well as other forms of loans such as credit card debt. Leasing transactions, on the other hand, are excluded from this as leasing is regarded as a type of rent under tax law.

In the case of private loans, the lender's interest certificate is often missing. In such cases, you should enclose copies of the loan agreement and bank receipts of all payments made with your tax return.

5. Conclusion

Deducting the interest on any debt you might have is an easy way to reduce your tax burden. You therefore shouldn't forget to claim it on your next tax return.

Find out more about tax deductions in Switzerland here.

This article was first published on 08.08.2019

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Approval of a loan is forbidden by law if it would lead to over-indebtedness (Art. 3 UWG).