DeutschSave taxes when renting - but not in every case
Published on: , by
Property ownership is sometimes used to save taxes. In the vast majority of cases, this is perfectly legitimate. However, some tax planning models overshoot the mark by far. The Federal Fiscal Court has now put a stop to this.
The Federal Fiscal Court has ruled in its judgement (BFH, 20.06.2023 - IX R 17/21): If a property with a living space of more than 250 square metres is rented out, losses from the rental cannot be offset against other income of the taxpayer without further ado.
In the case in dispute, the taxpayers, a couple, had acquired a total of three villas, each with a living space of more than 250 square metres. They let the properties to their adult children for an indefinite period. The taxpayers realised annual losses of between EUR 172,000 and EUR 216,000 from letting the properties. They offset these losses against their other income. This resulted in considerable income tax savings.
The BFH did not allow the losses to be offset against other income and the associated tax savings. If a property with a living space of more than 250 square metres is rented out, the taxpayer must prove that the rental is made with the intention of generating a financial surplus. If he cannot provide this proof because he generates losses over a longer period of time, the letting activity is a so-called hobby that is irrelevant for tax purposes. In the case of a hobby, losses from this activity cannot be offset against other positive income.
With this decision, the BFH confirms its previous case law, according to which tax advantages are not automatically to be expected when letting lavishly designed or furnished properties. These are properties for which the market rent does not adequately reflect the special residential value and which often cannot be let to cover costs due to the associated costs. For such properties, it must be demonstrated as part of the tax income calculation that a positive result can be achieved over a period of 30 years.
(Photo: © Federal Fiscal Court, Daniel Schvarcz)