The home equity reinvestment rule determines how much of the profit from selling your home you are required to put toward the purchase of a new home. If you don’t use that equity, you lose the right to deduct mortgage interest on that amount. The rule applies to everyone who sells a primary residence and purchases a new home within three years. In this article, we answer the most frequently asked questions about how the home equity reinvestment rule works in practice.
How much of your home equity are you required to reinvest?
You are required to put your full home equity reserve toward the purchase of your new home. The home equity reserve equals the sale proceeds from your current home minus the remaining mortgage balance and selling costs. You are not entitled to deduct mortgage interest on the portion of your new mortgage that equals this reserve.
For example: you sell your home for €350,000. You had an outstanding mortgage of €200,000 and pay €5,000 in selling costs. Your home equity reserve is therefore €145,000. In principle, you must use that amount as your own contribution toward your next purchase. If you don’t, you may not deduct the interest on the portion of the mortgage that exceeds that amount.
The home equity reserve expires after three years. If you don’t buy a new home within that period, you are no longer required to reinvest the equity. The three-year period begins on the date you transfer ownership of the sold property at the notary.
How do you calculate the home equity reinvestment rule for your new home?
You calculate the home equity reinvestment rule by subtracting your home equity reserve from the purchase price of your new home. The difference is the maximum amount on which you may claim a mortgage interest deduction. If you borrow more than that difference, the interest on the excess is not deductible.
A concrete example makes this clear:
- Sale price of old home: €400,000
- Remaining mortgage: €250,000
- Selling costs: €8,000
- Home equity reserve: €142,000
- Purchase price of new home: €500,000
- Maximum mortgage with interest deduction: €500,000 minus €142,000 = €358,000
If you take out a mortgage of €420,000, the interest on the top €62,000 is not deductible. That €62,000 falls into box 3 and is taxed as wealth. It is therefore important to track and document this amount carefully so you don’t make mistakes when filing your tax return.
What happens to the home equity reinvestment rule if you rent temporarily?
If you rent temporarily after selling your home, the reinvestment rule continues to apply as long as you purchase a new home within three years. Your home equity reserve does not disappear simply because you rent in the interim. You remain obligated to reinvest the equity in your next purchase.
If you wait more than three years before buying a new home, the home equity reserve expires entirely. You are then no longer required to reinvest the equity, and you are entitled to a full mortgage interest deduction on your new loan. For those who deliberately choose a longer rental period, this can be an attractive option — but be aware: the three years start running from the date of the notarial transfer of ownership, not from the date you hand over the keys.
Renting temporarily and considering buying again afterward? Keep track of when the three-year period expires. That date determines whether you still need to reinvest your equity or not.
Does the home equity reinvestment rule apply when buying a less expensive home?
Yes, the reinvestment rule also applies when you buy a less expensive home than the one you sold. In that case, you must still reinvest your full home equity reserve, but that reserve may be larger than the purchase price itself. The portion of the reserve that exceeds the purchase price is not automatically written off.
Suppose your home equity reserve is €180,000 and your new home costs €150,000. You would then purchase the home entirely with your own funds and have no room for a mortgage with interest deduction. The remaining €30,000 does not simply disappear: that portion of the reserve remains active and is taken into account if you buy another home within the three-year period.
This is a situation that regularly catches people off guard. Those who downsize after a major life change sometimes assume the reinvestment rule becomes less relevant. That is not the case: the reserve follows you until the period has expired or until you have fully used it up.
How does the home equity reinvestment rule work in the event of divorce or death?
Specific rules apply to the home equity reinvestment rule in the event of divorce or death. In a divorce, the home equity reserve is divided based on each party’s share of the equity. Each former partner carries their portion forward to any subsequent purchase. When a partner dies, the reinvestment rule lapses for the surviving partner under certain conditions.
The reinvestment rule in the event of divorce
When partners separate and sell their shared home, the equity is typically divided fifty-fifty. Each partner then has their own home equity reserve equal to half of the total equity. If one of the partners buys a new home, the reinvestment rule applies based on their individual share. If one partner takes over the home from the other, additional tax rules apply that depend on how the buyout is financed.
The reinvestment rule in the event of death
When a partner dies, the surviving partner typically inherits their share of the home. The home equity reserve that the deceased had built up lapses in that case. The surviving partner is not required to carry that reserve forward to a new purchase. This can make a significant financial difference, as the surviving partner is able to take out a larger mortgage with interest deduction than would have been possible had the reserve remained in effect. If you are unsure, always seek advice from a mortgage advisor or tax specialist, as the exact outcome depends on your personal circumstances.
When should you consult a mortgage advisor about the home equity reinvestment rule?
You should consult a mortgage advisor as soon as you are seriously considering selling your home and already know you want to buy again afterward. The earlier you do this, the better you can factor the financial implications of the reinvestment rule into your decision. An advisor will help you calculate your home equity reserve correctly and determine how much of your mortgage will qualify for an interest deduction.
Specific situations in which you need an advisor:
- You are buying a less expensive home than the one you are selling and are unsure what happens to the remaining portion of your reserve
- You are renting temporarily and want to know exactly when the three-year period expires
- You are going through a divorce and want to know how the reserve will be divided
- You have owned multiple homes and are no longer sure which reserves are still active
- You want to make the most of the mortgage interest deduction on your new home
A mortgage advisor works in close contact with the tax authorities and is up to date on the current tax rules for 2026. They can also calculate whether it is financially more advantageous to reinvest your equity or to deliberately opt for a longer rental period so that the reserve expires.
How we help you sell your home
The home equity reinvestment rule starts with a solid sales strategy. The more equity you realize from the sale of your current home, the larger the reserve you carry forward to your next purchase. It therefore pays to prepare your sale thoroughly.
At Urban Homies, we guide you through the entire sales process, from valuation and marketing strategy to negotiation and transfer of ownership at the notary. Here is what we do for you:
- Valuation: we conduct a thorough market analysis and establish a realistic asking price
- Professional presentation: your home is photographed and presented with a tailor-made listing
- Negotiation: we negotiate on your behalf to achieve the best possible sale price
- End-to-end support: we ensure the entire process runs smoothly, including aftercare
Want to know what your home is worth and how to approach the sale? View our sales guidance or contact us directly for a no-obligation conversation.
