When should a household saving be taken into account?

If you move into a nursing home, residential care home or the care department of a retirement home or residential complex 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 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 residential care 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).

(2023): When should a household saving be taken into account?

What conditions must be met for care home costs to be deducted?

Expenses for accommodation in a nursing home, care home for the elderly, or in the care section of a retirement home or residential facility can be deducted as extraordinary burdens according to § 33 EStG if the reason is care needs, 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" (§ 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 §§ 14, 15 SGB XI.
• have been found to have a significant impairment of everyday competence, so-called dementia patients (§ 45a SGB XI).
• hold 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 accommodation due to care needs, disability, or illness can be deducted as extraordinary burdens like medical expenses according to § 33 EStG. This applies not only to the costs of medical services and care but also to the costs of accommodation and meals. The tax office reduces the costs by a reasonable burden.

If care home costs are deducted as extraordinary burdens, 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 accommodation 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 care needs arise at a later date and at least care level I is determined, the care home and care costs can be fully deducted as extraordinary burdens, with the tax office applying a reasonable burden (BMF letter of 20.1.2003, BStBl. 2003 I p. 89).

(2023): What conditions must be met for care home costs to be deducted?

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

The tax relief for household-related services includes:

1. Domestic activities that are usually carried out by members of the private household and are performed by a service provider.
2. Expenditure on care and support services.
3. The tax relief amounts to 20%, up to a maximum of 4,000 Euro per year (according to § 35a para. 2 EStG).

Regarding accommodation in a home, there are two cases:

1. Accommodation in a home with own household: The tax relief applies if an independent household is maintained in the home, and services are provided directly in the resident's household and billed individually.
2. Accommodation in a home without own household: In this case, expenses are eligible if they are comparable to those for domestic help, but not for care and support services.

It is important to note that the tax relief does not apply to services provided outside the home, rent payments, caretaker, gardener and craftsman services, as well as care and support services outside the own household.

Children can deduct the costs for outpatient care of their parents if they have borne the costs, regardless of whether the care takes place in the household of the carer or the cared-for person. However, the tax deductibility depends on who concluded the care contract.

There is also a distinction between inpatient care (not deductible) and outpatient care (deductible), depending on the contract details.

The costs for a home emergency call system can be tax-deductible, but under certain conditions:

• The costs for a home emergency call system are tax-privileged if the on-call service is provided as part of "assisted living" in a senior residence. These costs can be deducted from the tax liability at 20 percent.
• The costs for a home emergency call system are not tax-privileged if they are outside "assisted living" in a senior residence, i.e., if the client still lives in their own apartment. These costs are not tax-privileged.

A recent decision by the Federal Fiscal Court states that expenses for a home emergency call system that merely establishes contact with a service centre are not tax-privileged as care and support services within the framework of household-related services. This applies if the service is not provided in the client's household. The case concerned a pensioner living alone in her own household using a home emergency call system. The tax office did not recognise the costs because the service was not provided in the pensioner's household, and the Federal Fiscal Court agreed with this view.

The main service of a pure home emergency call system is processing alarms and notifying contacts, the family doctor, care service, etc., by telephone and not calling the emergency service by the pensioner herself. Since this key service is not provided in the pensioner's apartment and thus not in her household, it is not tax-privileged.

(2023): 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 due to age, without being ill or in need of care, the costs 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 also apply to other elderly taxpayers in similar circumstances. It is not extraordinary for someone 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 dated 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, independently of a flat rate, this amount can be deducted as extraordinary expenses - subject to the reasonable burden. These are direct medical expenses.

(2023): Are the costs for a nursing home also recognised for tax purposes?

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

Just like a hospital stay, accommodation in a care home can also serve to cure or alleviate an illness. If you can no longer care for yourself due to illness and therefore move into a retirement home, residential home for the elderly or another facility, the following regulation applies:

In the case of 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.

(2023): Can the costs also be claimed for home care due to illness?

What is deductible if care needs arise after moving into a care 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 in accordance with § 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 if the illness or care needs that make accommodation necessary only occur later (BMF letter of 20.1.2003, BStBl. 2003 I p. 89).

(2023): What is deductible if care needs arise after moving into a care 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 retirement home or a care home due to the need for care and cannot finance 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 welfare agency under the Federal Social Assistance Act, and they will involve the children 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 dated 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, stepparent, 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 as a demand or at least an expectation of society in such a way that failure to comply may result in disadvantages in the moral or social sphere" (BFH judgment of 22.10.1996, BStBl. 1997 II p. 558).

(2023): Can the costs for a family member's care home be declared in the tax return?

Nursing 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, the children must pay for the 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 (2023) 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 (2023) 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, are both above the standard rates for basic income support under SGB XII and above 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.

(2023): Nursing home costs: When children have to pay for their parents