The Self-Employed Person’s Problem When Buying Property
Self-employed individuals pay professional income tax (NPD) at 4–6%, with no personal income tax (NDFL). The property tax deduction on the purchase of a home is applied against NDFL (Article 220 of the Tax Code). If you do not pay NDFL — there is nothing to deduct from.
Deduction amount: up to 260,000 rubles on a property purchase of up to 2,000,000 rubles, plus up to 390,000 rubles on mortgage interest. Total — up to 650,000 rubles for a mortgage purchase.
Three Lawful Routes for a Self-Employed Person
Route 1. Combining self-employment with salaried employment. A self-employed person may simultaneously hold an employment contract (but not with a client for whom they are already working as self-employed). Salary is subject to 13% NDFL. The deduction is applied against this NDFL.
Example: a self-employed person earns 2 million as self-employed (NPD) + works part-time at a company and receives 300,000 rubles in salary per year. NDFL of 39,000 rubles is withheld. This NDFL is refunded through the deduction — annually until the full 260,000 rubles is recovered.
Route 2. Rental or property sale income. If a self-employed person rents out an apartment without registering the income as NPD, that income is subject to NDFL. Alternatively, if they sold property on which NDFL was paid.
Route 3. Ceasing self-employment and switching to NDFL. If a self-employed person plans to take out a mortgage, it is sometimes advantageous to close the self-employed status and become a salaried employee — at least for a period long enough to accumulate a taxable base for the deduction.
An Important Nuance: The Deduction Carries Forward
The property deduction does not need to be claimed in a single year. If in the current year you paid NDFL of, say, 50,000 rubles — exactly that amount is refunded. The remaining balance of the deduction carries forward to subsequent years until fully exhausted.
This means: if you buy property now and take up employment two years later — you can still use the deduction from that purchase. The key requirement is that the deduction has not been used previously.
Read Also
- Tax on Selling Russian Property as a Non-Resident: How to Legally Reduce the Rate From 30% to 0%
- Personal Income Tax on Real Estate Sales: How to Avoid It Legally
Are you self-employed and want to claim a tax deduction on a property purchase? Contact us for a tax consultation — we will analyse your situation and identify the optimal way to apply the deduction.