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Personal Loans – Individual Loans

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How are income from loans taxed?

How are income from loans taxed?

If you are the lender yourself and therefore receive interest on privately granted loans, you must tax them as income from capital assets . These are to be specified in Annex KAP of the income tax return (§ 20 para. 1 no. 5 and 7 EStG). It makes no difference whether you lend the money to friends or through a portal to strangers.

Interest will be taxed at the withholding tax rate of 25 percent plus a 5.5 percent solidarity surcharge. Church members are also subject to church tax. If you have not yet fully utilized the saver lump sum of 801 Euro this year, the tax office will take it into account in the tax assessment.

Amount of the loan

Amount of the loan

You should record in the loan agreement the amount of the loan, the interest rate, the term and the terms and conditions for the payout and eradication. If you treat this loan agreement as a contract with a third party, this can well lead to tax savings in the family network. This has been confirmed by the Federal Finance Court in several judgments (for example, in its judgment of 29 April 2014, Az. VIII R 9/13).

Example : The father grants his son a loan of 100,000 euros, which he invests in the purchase of a condominium. The son then rents his property. For him, the interest payments represent income-related expenses for his rental income. They reduce his income tax in the amount of his personal tax rate.
The father, on the other hand, only has to pay around 26.4 percent in taxes on the interest received (without church tax). In this way, a tax rate difference can be exploited.

The condition for this is that the contracting parties are financially independent of each other and the borrower could apply for the loan elsewhere. If this is not the case, the tax office charges the interest with the personal tax rate .