If one partner borrows from the other to finance the purchase of their jointly owned home, this is not treated as a home loan for tax purposes.
Refinancing
This rule is laid down by law (in Article 3.119a, (Section 6(c) of the Income Tax Act 2001). As a result, the interest paid by the borrowing partner on the debt is not deductible as interest on the owner-occupied home. The debt must be reported in Box 3 (income from savings and investments). The lending partner must also include his or her claim in Box 3.
The borrowing partner can refinance the debt. He or she then borrows from a bank and uses the borrowed amount to repay the debt to his or her partner. If the bank loan meets all the conditions required for a home loan, the bank loan qualifies as a home loan from that point onwards. The interest (and charges) paid to the bank is then deductible as home loan interest. In a knowledge group position The Tax and Customs Administration confirms this. The maximum (for tax purposes) term of the loan, which is 360 months, begins from the moment the loan is classified as a home loan.