(2024) Can I claim income-related expenses from capital assets?

With the deduction of withholding tax, the tax liability for capital gains is generally settled. This means that expenses related to earning income can no longer be considered as deductible expenses upon proof. They are covered by the saver’s allowance of 1.000 Euro for single persons and 2.000 Euro for married couples.

Actual expenses cannot be deducted even in the favourable tax rate test. If your personal tax rate is below 25%, you can apply for your capital gains to be taxed at your individual tax rate in the tax return under "Anlage KAP" and thus correct the deduction of withholding tax of 25% in your favour (so-called favourable tax rate test). However, even with this "optional assessment at the individual tax rate", it is not possible to claim expenses upon proof (BFH ruling of 28.1.2015, VIII R 13/13).

However, there is an exception for the "mandatory assessment at the individual tax rate": In some cases, income tax on capital gains is not settled with the capital gains tax deduction. Instead, the capital gains must be declared in the tax return and taxed at the individual tax rate. The withheld capital gains tax is then credited against the tax liability. In this case, the normal tax rules for deducting expenses apply. This means that expenses can be deducted in the proven amount, e.g. interest on debt. No saver’s allowance is granted for these earnings (§ 32d para. 2 EStG).

A mandatory assessment at the individual tax rate may apply for

• Capital gains that belong to other types of income, e.g. rental income or business income,
• Capital gains from the sale of shares in a company with a stake of more than 1%,
• Capital gains from investments in companies as business assets,
• Interest from so-called back-to-back financing,
• Interest from a company or cooperative to its shareholders,
• Interest from private loans between related persons (e.g. spouses) if the borrower uses the loan to generate income and deducts the interest as business expenses or income-related expenses. In this case, the interest income for the lender is not subject to the withholding tax rate of 25% but is taxed like other income at the personal tax rate (§ 32d para. 2 no. 1a EStG).