What is included in income from renting and leasing?
What is included in income from renting and leasing (Form V) is regulated by the Income Tax Act. Section 21 of the Income Tax Act lists the following types of income:
- Income from renting and leasing of immovable property (land, buildings, parts of buildings, ships registered in a shipping register)
- Income from renting and leasing of rights equivalent to land (e.g. hereditary building rights, mineral extraction rights)
- Income from renting and leasing of business assets, particularly movable business assets (e.g. business inventory for commercial enterprises, agricultural businesses or freelance practices)
- Income from the temporary transfer of rights, particularly literary, artistic and commercial copyrights
- Income from the sale of rental and lease payment claims
Not included as rental income are revenues from renting out individual movable assets. This applies, for example, to the rental of individual pieces of furniture, the chartering of boats not registered in a shipping register, or the temporary lending of private vehicles, for example for a holiday trip.
(2022): What is included in income from renting and leasing?
What do I need to know about rental income?
As a landlord, you must declare the basic rent and the service charges passed on to tenants as additional income. The costs incurred in this context can be deducted as income-related expenses.
Example of rental income:
- Rental income for flats or rooms
- Rental income for garages/parking spaces
- Service charges passed on to the tenant
- Rent for advertising spaces and vending machine sites
- Interest on credit balances from building society contracts
- Compensation payment from a tenant for early termination of the lease
- Leases for undeveloped land
- Income from a hereditary building right
If your annual rental income is below the 520 Euro threshold (e.g. for subletting), you can omit this information from your tax return. Income up to this threshold from temporary letting is exempt from income tax. This also applies to the temporary subletting of parts of your rented flat. In this case, no corresponding income-related expenses can be claimed.
Please do not enter your income from subletting under the sub-item „Income - rental income", but on the page "Subletting of rented rooms".
(2022): What do I need to know about rental income?
What do I need to know about renting out a holiday flat?
If you wish to claim your holiday home for tax purposes, you may need to overcome significant hurdles, as the tax authorities will only contribute if the primary focus of the property is on rental. You must demonstrate a profit-making intention to the tax office. Expenses and losses for a holiday property can only be deducted if the primary aim is to generate profit through rental. However, this is where the main issue lies. If you cannot convincingly demonstrate to the tax office that you intend to make money from the holiday home, they will consider it a "hobby", and there will be no tax savings. The simplest way to prove the intention to make a profit is to initially not use the holiday home yourself. You can demonstrate this to the tax office with, for example, an estate agent contract that excludes personal use for the entire year. In addition, the profit-making intention through rental must be demonstrated to the tax office:
According to a decision by the Federal Fiscal Court (Ref: IX R 57/02), the property should be rented for at least 75 per cent of the local average rental period. If such a rental period cannot be achieved, a profit forecast over a 30-year period must show that a rental surplus can be achieved during this time (BFH: Ref IX R 97/00). This profit forecast must also be submitted if the holiday property is to be used privately. If the forecast concludes that a surplus is not expected within the 30-year period, the advertising costs will not be recognised. In this case, however, the rental income does not have to be taxed either. If the profit forecast is positive, the tax office must recognise the costs. The deductible rental periods are then compared with the non-deductible periods of personal use. The longer the rental period, the more can be deducted. Any potential vacancy can also be included in the rental period, for example, if it was precisely determined in advance when the holiday home would be used personally. Otherwise, the vacancy will be divided according to the ratio of rental to personal use.
Tip: What does "local average rental period" actually mean? What figures are relevant? The Federal Fiscal Court has recently addressed this question and issued a ruling that may help affected holiday home owners. When determining the benchmark for occupancy rates, only the local average rental period for holiday homes should be considered, not for all accommodation establishments in a town. Therefore, the benchmark is significantly lower than assumed by the tax authorities (BFH ruling of 26.5.2020, IX R 33/19).
If the tax office recognises all points, acquisition and financing costs as well as heating, electricity or repairs can be deducted for tax purposes. Especially in the first few years, for example due to loan interest, expenses may exceed income, which can reduce taxable income.
Current: The Federal Fiscal Court has commented on how to proceed if a landlord owns a holiday home with several flats that are used differently over the years, for example, initially for long-term rental and later as holiday flats. Is the profit-making intention to be assessed separately for each flat or for the entire property?
The Federal Fiscal Court has ruled that it depends on each individual flat. It also decided that the question of whether a total surplus can be achieved must be reassessed in the event of a change of use. This is the case, for example, if a flat is initially rented out long-term, then renovated and subsequently used as a holiday flat (BFH ruling of 8.1.2019, IX R 37/17).
(2022): What do I need to know about renting out a holiday flat?
