Loan interest in tax: how to deduct mortgage interest on your tax return

In this article, we’ll explain what loans and situations the deduction applies to, what conditions you must meet, how much you can deduct, what documents to prepare, and how to proceed with refinancing and multi-person mortgages.

Tax credit vs. mortgage interest deduction

Interest on a home loan is not a tax deduction, but a tax-free part of the basis. Tax credits (e.g., the taxpayer credit) reduce the directly calculated tax, while a deduction reduces the base on which the tax is still being calculated. The interest deduction therefore results in a saving at the applicable rate (usually 15%; the part of income above 36 times the average wage is taxed at 23%).

When can interest on a loan be claimed for tax purposes

The law explicitly requires that the loan be used for housing – this concept is defined directly in the Income Tax Act. This includes the purchase of a flat or house, construction, alteration/reconstruction, maintenance, repayment of a previous loan for housing purposes or the acquisition of a unit for ownership. The decisive factor is the actual acquisition of the housing need and use for your own permanent residence (yours, your spouse’s, children’s, parents’ or grandparents’).

Credits used for business or rental activities (tenant housing) are excluded from the deduction. If you have mixed housing use (e.g., you rent part of your home or operate a business in it), you must prorate the interest deduction based on the amount of your own housing.

The deduction can be claimed for mortgage and building society loans (including bridging/pre-mortgage loans if there is a demonstrable link between the mortgage and the housing need). Consumer loans from financial institutions other than banks and building societies are not eligible for the deduction.

Please note: The date of acquisition of the housing need (e.g. the date of registration of the ownership right in the land register) is decisive, not the date of signing the loan agreement. This date is also crucial for determining the amount of the limit (see below).

Who can deduct interest (employees, self-employed, co-borrowers)

The deduction can be claimed by individuals – both employees and self-employed persons. Employees typically submit documents to their employer as part of the annual settlement (by mid-February of the following year at the latest), while self-employed persons claim the deduction in their tax return.

At the same time, you must be a party to the loan agreement (borrower/co-borrower) and meet the conditions of housing need (including actual occupation for your own permanent residence). A guarantor cannot claim the deduction.

If there are more than one adult party to the contract, either one of them will claim the deduction in full or equally. At the same time, the financial limit is assessed in aggregate for all taxpayers in a joint household (i.e. persons living together permanently and paying for common needs).

All conditions for deducting mortgage interest

To be able to deduct the interest on your mortgage from your taxes, you need to meet a few basic conditions:

1. Purpose and use: the loan was used for housing and you use the property for your own permanent residence (yours, your spouse’s, your children’s, your parents’ or grandparents’). If you rent the property out or use it for business purposes, the deduction either cannot be claimed or must be reduced proportionately.
2. Subject of the credit: The credit was granted by a bank or building society (including bridging/pre-mortgage/additional loans in connection with a mortgage). Other financial institutions are not eligible for the deduction.
3. Time limit: If you only pay interest for part of the year, the amount claimed must not exceed 1/12 of the limit for each month you actually pay interest.
4. Land and construction: If you buy land with the intention of building, you must start construction within 4 years or the claim will lapse and amounts previously claimed must be made up.
5. Who claims: If there are more than one adult borrower on the loan, one claims the entire interest or each claims equally. In practice, the employer will usually request an affidavit from the other borrower that he or she does not claim the deduction.

Mortgage interest – how much you can deduct from your taxes

There is a basic annual limit on the deduction of interest in 2025:

• cZK 150,000 in aggregate for a jointly-headed household for residential property acquired from 1 January 2021.
• cZK 300,000 for old loans where the housing need was acquired before 1.1.2021. However, the date of acquisition (e.g. entry into the Land Registry) is decisive, not the date of the contract.

If you have an old and a new loan at the same time, the limits cannot add up to 450,000. You apply the new loan up to 150,000 first, and fill the remaining space up to 300,000 (if any) with interest on the old loan.

How much does this make on tax? Practical examples:

• If you pay CZK 80,000 in interest, you reduce the tax base by CZK 80,000 and save CZK 12,000 (80,000 × 15%). At a 23% rate on the basis part, the saving would be CZK 18,400.
• If you pay CZK 150,000 (the limit for “new” loans), you will save up to CZK 22,500 (or more if this reduces the 23% zone).

For an old mortgage with an interest of CZK 300,000, the saving comes to CZK 45,000 (at 15%).

About mortgage tax refund calculators: banks and financial portals often offer indicative calculators. The principle is simple: savings ≈ tax rate (15%/23%) × interest applied (up to the legal limit and taking into account the monthly reduction).

What documents you will need (employees and self-employed)

The basics are an annual Interest Payment Certificate from your bank or building society (most banks send this automatically at the beginning of the year and you can also find it in online banking). When you first apply, you typically also attach proof of ownership(a land registry extract) and, as appropriate, documents to prove use for your own permanent home. Employees generally submit the documents to the payroll office by 15 February; self-employed persons attach them to their tax return.

Documentation varies for different types of housing needs:

• Purchase of real estate: the date of registration in the land register is decisive; you must provide a statement from the title deed.
• Construction: building permit/notification and, upon completion, a statement from the title deed.
• Alteration of construction/maintenance: you prove ownership and use for permanent housing (e.g. permanent residence).
• Refinancing: you prove the original housing need and its acquisition (the deduction scheme is not changed by the refinancing itself).

In addition, be aware of the deadlines for filing your tax return – 1 April (paper), 2 May (electronic) or 1 July with an adviser and the deadlines for repayment of overpayments (within 30 days of the statutory deadline).

Multi-person mortgage and interest tax (spouses, partners, joint owners)

If there are multiple participants in the loan, the law is straightforward: either one person claims the deduction in full or each person claims it equally. You cannot “arbitrarily” set the ratio (e.g. 70/30). Always keep an eye on the total annual limit for one jointly farming household (CZK 150,000 or CZK 300,000 depending on the date of acquisition of the housing need). In practice, the employer will have an affidavit from the other borrower that he/she does not claim the interest.

Example: the spouses (co-borrowers) live in the same household and paid CZK 120,000 in interest in one year. Either one of the spouses can claim the whole 120 000 or both can claim 60 000. In both variants, the same ceiling logic applies for one household (CZK 150 000/300 000).

Deduction of interest when refinancing a mortgage

Refinancing does not in itself change the legal regime of the deduction. It is the moment of acquisition of the housing need – for example, the registration of the title in the case of a purchase – that is decisive. If the housing need was acquired before 1 January 2021, the old limit of CZK 300,000 remains in force even after a later refinancing. On the other hand, housing needs acquired from 1 January 2021 onwards are subject to the limit of CZK 150,000.

Loanincreases for new housing needs (e.g. new renovation after 1 January 2021) are treated separately and fall under the CZK 150,000 limit.

Who doesn’t deduct interest from their taxes (and when you have to deduct it)

• The guarantor (not the debtor/co-debtor).
• The loan is not for residential use (e.g., investment rental apartment). In the case of mixed use (rental/business portion), you deduct proportionately.
• The loan was not made by a bank/buildingsociety (e.g. some consumer loans from other institutions).
• Land without commencement of development within 4 years – entitlement lapses and amounts previously claimed must be made up.

Model situations (and how they are dealt with)

1. You moved in the middle of the year and have only paid interest for 6 months: you can only claim a maximum of 6 × 12,500 CZK for new loans (i.e. 75,000 CZK), as the law provides for a monthly reduction of the annual limit. The savings at a 15% rate amount to CZK 11,250.
2. You rent part of your apartment: You reduce the deduction proportionally – e.g. if you rent 40% of the floor area, you only claim 60% of the interest paid (of course, still taking into account the annual and monthly limits).
3. Married – old and new mortgage at the same time. The law does not allow for compounding to 450,000.
4. Refinanced old mortgage in 2024: The regime does not change – if the housing need was procured before 1 January 2021, the 300,000 limit remains (for the same property and without a new increase for a different housing need).
5. Land loan – you have not managed to start building within 4 years: The entitlement to the deduction ceases and amounts previously claimed must be made up in the period in which the breach occurred.

Summary

The home loan interest deduction is not a tax credit, but a tax-free part of the basis – so it reduces the tax base (saving typically 15% or 23% at the top rate). It can be claimed by natural persons – borrowers/co-borrowers on loans from banks or building societies, only for housing used for their own permanent residence (for mixed use it is reduced proportionally). Neither principal repayments nor loans on rented or business property can be deducted. If there is more than one borrower, one applies the deduction in whole or in equal shares, with the limit applying to the entire household living together. The monthly reduction applies if interest is paid for only part of the year and the four-year period for commencing construction on land.

The annual limit is CZK 150,000 for housing acquired from 1 January 2021 and CZK 300,000 for old cases before that date (they cannot be added up to CZK 450,000; the new limit is used up first). Refinancing does not change the scheme – the new increase for the next housing need is treated separately in the new limit. The date of acquisition (e.g. entry into the Land Registry) is key for application, you need confirmation of interest paid annually and proof of ownership/occupation when first applying. Employees submit supporting documents to payroll, self-employed attach them to the return.