First degree: correctly deduct accommodation costs for your first degree?

Costs for a first degree after completing vocational training can be deducted as anticipated income-related expenses without limit.

However, costs for a first degree directly after A-levels (without prior training) can only be deducted up to 6.000 Euro per year as special expenses.

If parents pay the rent: Who can deduct what?

Students often do not have enough income of their own and are financially supported by their parents, who often also pay the rent. In practice, it is often the case that the rental contract is in the parents' name – for example, because landlords require it.

But what does this mean for tax purposes? Can the child deduct rent and estate agent's fees for the student accommodation as training costs, even though the parents pay?

Case study: Ruling of the Lower Saxony Tax Court

In a specific case (Lower Saxony Tax Court, ruling of 25.02.2016, 1 K 169/15), the rental contract was concluded in the father's name. The father covered all accommodation costs. The court distinguished between:

• Estate agent's fees: These were recognised as the child's income-related expenses.
• Rent payments: These were not recognised as income-related expenses.

Why is this? – Shortened contractual route

• Estate agent's fees: The father acted via the so-called shortened contractual route. He concluded the contract in his own name, but in the interest and on behalf of the child. Therefore, the child could claim the estate agent's fees as their own income-related expenses.
• Rent: Although the rent payments were also made via the shortened contractual route, this is a long-term debt relationship. For ongoing payments such as rent, it is assumed for tax purposes that the payer (in this case, the father) is paying for themselves and merely granting the child a right of use. Therefore, no deduction as income-related expenses is possible (see BMF letter of 07.07.2008, BStBl. 2008 I p. 717).

Tip: Conclude the rental contract in the child's name

As long as there is no supreme court decision on this issue, it is advisable to conclude the rental contract in the student's name. The parents can then:

• act as guarantors in the rental contract,
• or transfer the money to the child so that the child pays the rent themselves (so-called cash gift).

This can achieve better tax deductibility.

Legal situation: Income-related expenses or special expenses?

The Federal Constitutional Court ruled on 19.11.2019 (published on 10.01.2020, ref. 2 BvL 22/14 et al.) that the current legal regulation is constitutional.

This means: Costs for a first degree without prior training may not be deducted as income-related expenses, but only as special expenses up to 6.000 Euro per year.

Only for a second degree, postgraduate studies or studies after completing vocational training are income-related expenses without limit possible.