What can I deduct as income-related expenses?
All expenses incurred in connection with the rented property can be deducted as income-related expenses. These include in particular the following costs:
- Administrative costs
- Costs for estate agents, service charges, advertisements or a rental service
- Interest on a loan
- Depreciation
- Property tax
- Bank charges, overdraft interest etc.
- Insurance (liability, fire, water etc.)
- Electricity costs for house lighting
- Heating and hot water
- Costs for sewage, waste disposal, chimney sweep, street cleaning
- Caretaker costs (also property management and cleaning)
- Trips to the property, estate agent or owners' meeting
- Cosmetic repairs
Additional costs that you settle with your tenants can only be declared as income-related expenses in your tax return if you also enter them as income from renting and leasing.
(2022): What can I deduct as income-related expenses?
What are income-related expenses in connection with the letting and leasing of a property?
You can deduct income-related expenses from your income from renting and leasing. Income-related expenses are costs incurred for the acquisition, securing, and maintenance of the property.
These expenses are deducted from the rental income. A positive result, i.e., a profit, increases your tax burden. A negative result leads to a tax saving.
A tax loss from renting and leasing due to high income-related expenses can be offset against other positive income. The decisive factor for entering the income-related expenses in the tax return is the date of payment. When the expenses were incurred or when you received the invoice is generally irrelevant.
You can also claim income-related expenses if the property is not yet rented. However, there must be an intention to rent. If you do this, the tax office will initially recognise the costs but will issue the tax assessment on a provisional basis. If you do not rent out the property, the tax office can revoke the deduction of income-related expenses.
(2022): What are income-related expenses in connection with the letting and leasing of a property?
What is the energy performance certificate and what costs are involved?
The energy performance certificate is a document that assesses the energy requirements of a building. There are 2 types of energy performance certificates: the requirement-based certificate and the consumption-based certificate. The requirement-based certificate considers the building's energy needs, while the consumption-based certificate analyses the actual energy consumption of recent years. Energy performance certificates are valid for ten years from the date of issue.
As a landlord of a residential building in Germany, you are legally obliged to provide an energy performance certificate for your property. The certificate provides information about the building's energy requirements and serves as a guide for tenants and buyers. However, there are costs associated with obtaining the energy performance certificate, which can affect landlords.
The costs for obtaining an energy performance certificate depend on various factors, such as the size of the building, the type of certificate, and the effort required by the energy consultant. Generally, the expenses range from 150 to 600 Euro.
Claiming the energy performance certificate as income-related expenses for landlords
As a landlord, you can claim the costs for obtaining an energy performance certificate as income-related expenses in your tax return. This applies regardless of whether you obtain the certificate due to a legal obligation or voluntarily. The costs can be claimed as income-related expenses under rental income.
The costs for the energy performance certificate are immediately deductible income-related expenses. It is advisable to keep the invoice for obtaining the certificate to present it in the event of a tax office review.
(2022): What is the energy performance certificate and what costs are involved?
What costs can landlords deduct for tax purposes during a vacancy?
Anyone renting out property in Germany must not only manage the rental, tenant selection, and support but also be prepared for vacancies. If a flat or house is vacant for a certain period, it can lead to financial losses. But what options are there to deduct expenses for temporary vacancies for tax purposes?
What are expenses for temporary vacancies?
Expenses for temporary vacancies include all costs associated with renting out property that cannot be covered by rental income due to vacancies. These include costs for maintenance and repairs, advertising, energy costs, property tax, and waste disposal fees. However, the vacancy must actually be temporary, meaning there must be a realistic chance that the flat or house will be rented out again.
Tax deductibility of expenses for temporary vacancies
Expenses for temporary vacancies can be deducted for tax purposes, but certain conditions must be met. Firstly, the costs may only arise if the property is rented out and no income is generated. Secondly, the costs must be necessary and reasonable, i.e., no luxury renovations or unnecessary maintenance work should be carried out.
The deductible expenses are claimed as income-related expenses under income from renting and leasing. They must be stated in the tax return for the respective year. When calculating income tax, they are then deducted from rental income.
Overall, expenses for temporary vacancies can be deducted for tax purposes if they are necessary, reasonable, and actually incurred. However, landlords should ensure that the vacancy is indeed temporary and that there are realistic prospects for renting. If in doubt or if there are questions about tax deductibility, landlords should consult a tax advisor.
(2022): What costs can landlords deduct for tax purposes during a vacancy?
How should the estate agent's commission for landlords be assessed?
Under previous regulations, the landlord could hire an estate agent, but the estate agent's commission of up to two months' net rent plus VAT always had to be paid by the future tenant. These costs were in addition to the often already high rent and the rental deposit for the new tenancy.
Currently, the "Mietrechtsnovellierungsgesetz (MietNovG)" of 21 April 2015 stipulates that from 1 June 2015, the so-called client-pays principle applies: whoever hires the estate agent must also pay them. Under the new regulation, it is generally not the tenants but the landlords who bear the estate agent's fees.
The landlord can deduct the paid estate agent's commission as income-related expenses from rental income. The "Gesetz zur Regelung der Wohnungsvermittlung (WoVermRG)" now states:
If the landlord hires an estate agent to find a suitable tenant, the tenant is under no circumstances obliged to pay the commission. Agreements to transfer the payment obligation for the estate agent's fee to the tenant are invalid. Violations by housing agents against the prohibition to demand a fee from the house hunter can be prosecuted with fines.
Housing brokerage contracts must be concluded in text form (e.g. email) to be valid. This is to avoid any uncertainties regarding the conclusion of the contract from the outset. If a brokerage contract is not concluded in text form, the contract is void in accordance with § 125 sentence 1 BGB.
Estate agent contracts between a house hunter and the estate agent are only concluded if the estate agent procures the property solely because of the contract with the house hunter, for which the tenancy agreement is ultimately concluded.
The house hunter who contacts the agent in response to a property advertisement can no longer be obliged to pay. Under the new legal situation, an estate agent only acts in the interest of a house hunter if they search for the house hunter and the property exclusively for them and in their interest. Only then is the house hunter the "client".
Circumvention transactions that would result in the landlord initially paying the brokerage fee but then passing the costs back onto the house hunter in another way are expressly prohibited.
It is clarified that a contractual transfer of costs to the house hunter is invalid (§ 2 para. 5 no. 2 WoVermRG). In addition, § 4a para. 2 sentence 2 WoVermRG already prevents the tenant protection regulations from being circumvented, for example through excessive compensation payments for provided fixtures or furniture.
(2022): How should the estate agent's commission for landlords be assessed?
How are the costs of a fitted kitchen treated?
A fitted kitchen is not considered a single asset but consists of various components that are independent assets. A distinction is made between the sink and cooker on the one hand and the other kitchen elements on the other.
- Sink and cooker are considered non-independent building components required for the building's use as a residence. Therefore, these costs are part of the building's construction costs and are depreciated along with it. If the sink and cooker are replaced, the expenses are maintenance costs and can be fully deducted as advertising costs from rental income.
- The other parts of the fitted kitchen are independent assets. Their purchase costs can be deducted as advertising costs from rental income. If the purchase costs exceed 410 Euro (excluding VAT), they must be depreciated over the expected useful life. If an existing fitted kitchen is replaced with a new one, the purchase costs are not maintenance expenses and therefore cannot be fully deducted. Instead, the new fitted kitchen must be depreciated normally.
Currently, the Federal Fiscal Court has abandoned its previous view and established new rules for the tax treatment of fitted kitchens in rented apartments: sinks and cookers are no longer considered non-independent building parts but are now 'normal' components of the fitted kitchen. The fitted kitchen is considered a single asset and must be depreciated over a 10-year period. This applies both to initial purchases and renewals (BFH ruling of 3.8.2016, IX R 14/15, published on 7.12.2016). The change in case law means a significant disadvantage for landlords: they can no longer immediately deduct individual components of the fitted kitchen, such as electrical appliances valued at less than 800.01 Euro (excluding VAT), as advertising costs. Instead, the entire fitted kitchen must be depreciated over 10 years, so only 10 percent per year can be considered as advertising costs.
It still applies that a fitted kitchen can be considered an essential part of the building in exceptional cases. For this, the fitted kitchen must be firmly connected to the building and cannot be separated without destroying one part or the other. This is assumed "if the fitted kitchen is integrated into the designated space and united with the surrounding building walls (side walls and back wall)." In this case, the purchase costs are added to the building construction costs and depreciated at 2% per year; the costs for a renewal are considered maintenance expenses and can be fully deducted as advertising costs immediately (BFH ruling of 1.12.1970, VI R 358/69).
(2022): How are the costs of a fitted kitchen treated?
