When should household savings be taken into account?

If you move into a care home, nursing home or the care department of a retirement home or residential facility due to care needs, the high care home costs can be deducted as extraordinary expenses according to § 33 EStG, with the tax office applying a reasonable burden.

In this case, as your own food and accommodation costs are saved, the deductible care home costs must first be reduced by a so-called household saving. However, this only applies if your own household is dissolved.

However, the deductible care home costs must not be reduced by a household saving as long as the person in need of care maintains their household. In this case, the fixed costs of the household, such as rent, mortgage interest, basic fees for electricity, water, etc., and cleaning costs continue. There is no general time limit for this. Rather, due to the psychological burden associated with dissolving the long-standing home and permanently moving into a care home, the household saving should not be deducted as long as the home is still maintained.

By the way: This also applies if the care recipient's home is still occupied by their spouse. In such a case, fixed costs arise due to the then oversized home, which make the deduction of a household saving from the care home costs appear unjustified.

If both spouses move into a care home together due to their care needs and dissolve their household, the tax offices want to deduct the household saving twice, even though only one joint household is dissolved. This has also been confirmed by the Nuremberg Fiscal Court (FG Nuremberg of 4.5.2016, 3 K 915/15; Revision VI R 22/16).

By the way: If both spouses are accommodated in a nursing home due to illness, a household saving is to be applied for each spouse (BGH judgment of 4.10.2017, VI R 22/16, BStBl 2018 II p. 179).

(2022): When should household savings be taken into account?

What conditions must be met for the deduction of care home costs?

Expenses for accommodation in a care home, nursing home, or the care section of a retirement home or residential facility can be deducted as extraordinary expenses under Section 33 of the Income Tax Act if the reason is a need for care, a disability, or an illness.

Persons in need of care are those "who, due to a physical, mental, or emotional illness or disability, require assistance with the ordinary and regularly recurring activities of daily life on a permanent basis, expected to last at least six months, to a significant or higher degree" (Section 14 SGB XI).

Persons are considered in need of care if they:

• have been classified into one of the three care levels (until 2016) or one of the five care grades (from 2017) according to the Care Insurance Act, Sections 14, 15 SGB XI.
• have been found to have a significant impairment of everyday competence, such as dementia patients (Section 45a SGB XI).
• possess a severely disabled pass with the mark "H" or "Bl".
• receive outpatient care and the care costs are invoiced separately by a recognised care service.
• are accommodated in a retirement home and care services of care rate level 0 are invoiced separately (BFH judgment of 10.5.2007, BStBl. 2007 II p. 764).

Expenses for home accommodation due to care needs, disability, or illness can be deducted as extraordinary expenses like medical costs under Section 33 of the Income Tax Act. This applies not only to the costs of medical services and care but also to accommodation and meals. The tax office reduces the costs by a reasonable burden.

If care home costs are deducted as extraordinary expenses, the increased disability allowance of 7.400 Euro and the 'normal' disability allowance cannot be claimed (R 33.3 para. 4 EStR). Furthermore, care home costs are reduced by a so-called household saving due to saved meal and housing costs if the household is dissolved.

The situation is different for age-related accommodation in a retirement home: In this case, care home costs are considered normal living expenses and are not recognised for tax purposes. If a need for care arises at a later date and at least care level I is determined, the care home and care costs can be fully deducted as extraordinary expenses, with the tax office applying a reasonable burden (BMF letter of 20.1.2003, BStBl. 2003 I p. 89).

(2022): What conditions must be met for the deduction of care home costs?

Can tax reductions for household-related services also be claimed in a care home?

There is a tax benefit for household-related services. Household-related services mainly include domestic activities that are usually carried out by members of the private household and for which a self-employed service provider is hired.

Care and support services are also eligible. Expenses for care and support services can be deducted directly from the tax liability at 20%, up to a maximum of 4.000 Euro per year (§ 35a para. 2 EStG). The tax benefit is available not only to the person in need of care but also to relatives if they pay for the care and support services.

The tax benefit can also be claimed by people living in a retirement home, nursing home, or residential care facility. Two cases must be distinguished here:

(1) Accommodation in a home with own household:

The tax benefit according to § 35a EStG is possible if an independent and self-contained household is maintained in the home. A household in a home exists if the premises are equipped for household management (bathroom, kitchen, living and sleeping area), can be used individually (lockable), and the resident's own management can be proven or credibly demonstrated. This is only the case if the resident lives in a flat, not if it is merely a care room without cooking facilities.

Eligible are services provided by the home operator,

• which are provided directly in the resident's household (flat) and billed individually, such as cleaning the flat, care and support services.
• which the home operator provides according to the home contract and which are billed either as a lump sum or individually, especially caretaker work, garden maintenance, minor repairs, cleaning of communal areas, services of house and floor staff.
• which are used by the resident if required, provided proof is provided. This applies to services provided by the home operator, possibly using their own staff, as well as services from an external provider. Costs charged as a lump sum by the home operator are also eligible, provided it is proven that the service paid for was actually provided to the resident.

(2) Accommodation in a home without own household

For the tax benefit according to § 35a EStG, it is not absolutely necessary for there to be an own household in the home. Even when staying in a room only, such expenses are eligible if they are comparable to those of a household help. Care and support services are not comparable to household help.

Eligible are, for example, the proportional costs for

• cleaning the room, apartment, and communal areas,
• preparing and serving meals in the home,
• laundry service, as long as it is done in the home.

Not eligible are

• expenses for services not provided on-site in the home, e.g. for laundry and ironing at the service provider's premises or for "meals on wheels" delivered from outside.
• rental payments, such as general expenses for accommodation in a retirement home, nursing home, or residential care facility.
• expenses for the caretaker, gardener, and for craftsmen's services. These can only be deducted if there is an own self-contained household.
• care and support services outside the own household, e.g. in a care room. These can be claimed as extraordinary general expenses with a deductible.

Tip: It is common for tenants and especially residents of nursing homes, retirement homes, or senior residences to have to pay lump sums for cosmetic repairs or maintenance work. Sometimes the affected parties also receive certificates showing the lump sum payments. However, if an attempt is made to claim the tax reduction under § 35a para. 3 EStG for craftsmen's services, they usually encounter a negative response from the tax authorities - and unfortunately rightly so. In the Federal Fiscal Court ruling of 05.07.2012 (VI R 18/10, BStBl 2013 II p. 14), it states: "If the tenant ... makes lump sum payments to the landlord for the execution of cosmetic repairs, these are not expenses for craftsmen's services within the meaning of § 35a para. 2 EStG if the payments are made regardless of whether and to what extent the landlord actually commissions repairs to the tenant's flat." Therefore, the recommendation can only be given that the landlord actually lists the work carried out individually and bills the tenant. However, it must be admitted that probably in many cases neither the tenant nor the landlord is interested in such billing.

In 2019, the Federal Fiscal Court unfortunately - against the generous attitude of the tax authorities - decided that the tax reduction according to § 35a EStG is only granted for expenses incurred by a taxpayer for their own accommodation in a home or for their own care. However, the tax advantage is excluded for expenses incurred for another person, i.e. if children cover the costs for their parents (BFH ruling of 3.4.2019, VI R 19/17).

A few months after the BFH ruling, the Berlin-Brandenburg Finance Court also dealt with the assumption of care costs for a parent. This time, however, it was not about the assumption of costs for inpatient care, i.e. for accommodation in a home, but about the assumption of costs for outpatient care. The FG decided as follows: § 35a EStG favours - if at all - only expenses for the outpatient care of relatives in the taxpayer's own household (i.e. the carer's), not for the outpatient care of relatives in their household (BFH ruling of 11.12.2019, 3 K 3210/19). However, a revision was explicitly allowed at that time. And now the positive ruling of the BFH is available.

The Federal Fiscal Court has now ruled as follows: The tax reduction according to § 35a para. 2 sentence 2 first half-sentence EStG can also be claimed by taxpayers who incur expenses for the outpatient care and support of a third party. Consequently, children can deduct the costs for outpatient care of their parents if they have borne the costs. This also applies if the care and support services are not provided in the taxpayer's own household but in the household of the person being cared for or supported (BFH ruling of 12.4.2022, VI R 2/20).

However, the BFH also complicates matters, as it upholds its above-mentioned ruling from 2019. It distinguishes between the assumption of costs for inpatient care (= still not deductible) and the assumption of costs for outpatient care (= deductible), where in the second case it depends on who concluded the care contract. Only if the payer, usually daughter or son, is contractually obliged, i.e. pays on their own debt, are the costs deductible. If, on the other hand, payment is made on the debt of the person being cared for, i.e. father or mother, because they concluded the care contract, it is a tax-irrelevant third-party expense.

(2022): Can tax reductions for household-related services also be claimed in a care home?

Are the costs for a nursing home also recognised for tax purposes?

If you move into a retirement home, retirement residence or senior citizens' residence for reasons of age, without being ill or in need of care, the costs of the home are not recognised for tax reduction purposes. These are considered living expenses. According to the Federal Fiscal Court (BFH), such expenses are not extraordinary in nature or reason, as they are also incurred by other elderly taxpayers in comparable circumstances. It is not extraordinary for a person to live in a retirement home because they can no longer or do not wish to care for themselves.

If care needs arise at a later date, the home and care costs can be fully deducted as extraordinary expenses in accordance with § 33 EStG from that point onwards, with the tax office applying a reasonable burden (BMF letter of 20.1.2003, BStBl. 2003 I p. 89). See below d).

If the costs of the retirement home include a flat rate for basic care, this portion cannot be deducted from the home costs and claimed as an extraordinary expense. However, if specific care services are provided on request or as needed and are invoiced separately on a monthly basis, this amount can be deducted as extraordinary expenses - subject to the reasonable burden. These are direct medical expenses.

(2022): Are the costs for a nursing home also recognised for tax purposes?

Can the costs also be claimed for home care due to illness?

Similarly to a hospital stay, accommodation in a care home can also serve to heal or alleviate a condition. If you can no longer care for yourself due to illness and therefore move into a retirement home, residential care home or other facility, the following regulation applies:

In the case of a care home stay due to illness, you can deduct the care home costs (accommodation and meals) in full as extraordinary expenses under § 33 EStG, with the tax office applying a reasonable burden.

In the case of illness-related accommodation, the tax offices waive the reduction of costs due to household savings.

(2022): Can the costs also be claimed for home care due to illness?

What is deductible if care needs arise after moving into the nursing home?

If you or your spouse initially move into a "normal" retirement home due to age and later become in need of care, the following regulation applies: In this case, the Federal Fiscal Court had ruled that the home costs (for meals and accommodation) cannot be deducted for tax purposes, but only the care costs would be recognised as extraordinary expenses according to § 33 EStG (BFH ruling of 18.4.2002, BStBl. 2003 II p. 70).

However, exceptionally, the tax authorities are more generous than the BFH judges: From the point at which the need for care is determined, the tax office recognises all home costs (meals, accommodation, and care costs) as extraordinary expenses under § 33 EStG.

A reasonable burden is deducted. There should be no tax difference whether the move into a retirement home is due to illness or care needs, or whether the illness or care needs that make accommodation necessary only occur later (BMF letter of 20.1.2003, BStBl. 2003 I p. 89).

(2022): What is deductible if care needs arise after moving into the nursing home?

Can the costs for a family member's care home be declared in the tax return?

Payments for the residential care of a close relative - whether demanded by the social services or made voluntarily by you - are tax-deductible as extraordinary expenses under § 33 EStG if the payments are "compulsory" for you due to legal or moral reasons.

When is this the case?

(1)  A legal obligation to provide support generally exists for relatives in the direct line (§ 1601 BGB):

• Not only are parents legally obliged to support their children, but children are also obliged to support their parents. The maintenance obligation of children mainly arises when parents are in a care home due to age or need for care and cannot cover the high care costs from their income and assets. If the social services cover the uncovered additional costs, the maintenance claim is transferred to the social services provider under the Federal Social Assistance Act, and they will involve the children in financing according to their income.

• Relatives in the direct line also include grandparents: However, their children are primarily obliged to provide support, not the grandchildren (§ 1606 BGB). Even if the grandchildren are not asked to contribute by the social services, they often make voluntary payments to support their grandparents. In this case, there is not a specific maintenance obligation, but merely an abstract one. This is sufficient to affirm a legal obligation (R 33a.1 para. 1 sentence 3 EStR; OFD Frankfurt of 5.5.1998, DB 1998 p. 1160).

• A legal maintenance obligation can also arise towards a divorced spouse (§§ 1361, 1569 BGB) or towards a partner in a registered civil partnership (§§ 5 and 12 LPartG), so a legal obligation is also given here.

(2)  A moral obligation may apply to other relatives within the meaning of § 15 AO (siblings, parents-in-law, son-in-law and daughter-in-law, stepparents, uncle, aunt, niece, nephew, brother-in-law, sister-in-law, foster parents with foster children): According to the BFH, this is to be assumed "if, in the opinion of the majority of fair and just-thinking fellow citizens, a taxpayer may feel obliged to behave in such a way.

Morally commendable or particularly praiseworthy reasons alone are therefore not sufficient. The moral imperative must rather appear similar to a legal compulsion from outside as a demand or at least an expectation of society in such a way that failure to comply may have consequences in the moral or social sphere" (BFH judgment of 22.10.1996, BStBl. 1997 II p. 558).

(2022): Can the costs for a family member's care home be declared in the tax return?

Home costs: When children have to pay for their parents

If a parent is in a care home due to the need for care or in a retirement home due to age, their own income is often not sufficient to cover the costs. In many cases, children must pay for their parents. These can be payments to the home, the social services department, or directly to the parent. The question is whether and how you can involve the tax authorities in the home costs.

• Payments for care home accommodation due to the need for care, disability, or illness are deductible as general extraordinary expenses under section 33 of the Income Tax Act, although a reasonable burden must first be exceeded. Not only care costs but also accommodation and meals are deductible.
• Payments for accommodation due to age in a retirement home or senior citizens' residence are considered typical maintenance payments and can only be deducted up to the maximum maintenance amount of 10,347 Euro (2022) under section 33a (1) of the Income Tax Act. This is only possible if the parent's own income and benefits are less than 10,971 Euro or 21,942 Euro (2022) for a couple. This amount consists of the deductible maximum amount of 10,347 Euro and the allowance of 624 Euro.

Currently, the Cologne Tax Court has confirmed that payments to the social services department for the accommodation of the mother in a nursing home are deductible as extraordinary expenses under section 33 of the Income Tax Act, with the tax office applying a reasonable burden. The payments are deductible in the actual amount and do not need to be divided into care costs and accommodation and meals (Cologne Tax Court, 26.1.2017, 14 K 2643/16).

The payments made for the home accommodation cannot be partially reinterpreted as typical maintenance payments and thus deducted under section 33a (1) of the Income Tax Act without applying a reasonable burden. The judges clarify that there is no choice between deduction as extraordinary expenses under section 33 of the Income Tax Act and deduction as maintenance payments under section 33a (1) of the Income Tax Act. In principle, the home costs paid are to be reduced by a so-called household saving due to saved food and housing costs if the household of the person in need of care is dissolved.

A new and welcome insight from the judges: A household saving is not to be credited if the own income and benefits of the person in need of care, which they use for their maintenance, exceed both the standard rates for basic income support under SGB XII and the value to be set as household saving (2021: 9,744 Euro). In such cases, there is no household saving for the person being maintained and certainly not for the person obliged to provide maintenance (Cologne Tax Court, 26.1.2017, 14 K 2643/16).

Note: The reasonable burden depends on the amount of income, the number of children, and marital status. This is your deductible, which you must cover from the expenses before the general public of taxpayers helps you. The Federal Fiscal Court recently specified a new method for calculating the reasonable burden, which is significantly more advantageous for citizens.

(2022): Home costs: When children have to pay for their parents