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    Prepaid interest right before death is deductible

    If a taxpayer pays his mortgage loan interest in advance and then dies, the full amount of interest paid is deductible. That is to say, not only the amount due until the date of his death. This was ruled by the Supreme Court. The case concerned a woman who had paid her entire mortgage loan interest for 2014 as early as on January 4. Which was also the date she died. Her heirs included the prepaid interest in the income tax return for 2014 as a deductible item. The tax inspector was of the opinion that the part of the prepaid mortgage loan interest after January 4 was not deductible. At first, the Supreme Court referred to Book 3 Section 14, the Dutch Income Tax Act. It states that ‘interest for owner-occupied property’ may in principle be deducted once such interest has been paid or set off. Which would be on January, 4. But first, it must be investigated if the payment in advance fulfilled the requirements of ‘interest for owner-occupied property’. The law has certain restrictions for tax deduction. For example, an advance payment of more than 1.5 year further in time, is not deductible.

    Basis

    However, the Supreme Court did not see any basis to restrict the tax deduction. Reasonable application of the law implied that the prepaid interest could be fully deducted in one lump sum. Therefore, the interest remained a deductible item.

    Supreme Court, January 29, 2021, ECLI (abridged): 126

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