CURRENT: Summer 2021 storms
On 14 and 15 July 2021, a flood disaster of historic proportions with devastating effects occurred in Rhineland-Palatinate - particularly in the Eifel - and in North Rhine-Westphalia. On 17 July, parts of Bavaria and Saxony were also affected. Almost 200 people lost their lives. The low-pressure system "Bernd" caused damage amounting to billions. Numerous places have been devastated and partially destroyed, countless people are left with nothing, having lost their belongings and seeing only the ruins of their existence. The damage is indescribably large. Its repair leads to extraordinarily high financial burdens. The tax authorities want to help those affected and their supporters with various tax relief measures.
In the case of natural disasters that devastate entire regions, the tax authorities provide tax relief for those affected, which they implement on a case-by-case basis with the so-called "disaster decree". This is also the case with the current flood disaster.
Currently, the finance ministries of the affected states of Rhineland-Palatinate, North Rhine-Westphalia and Bavaria have decided on tax relief for those affected by floods, high water and flooding. In particular, expenses for the replacement of furniture, household items and clothing as well as for the repair of damage to owner-occupied houses can be deducted as extraordinary expenses in accordance with § 33 EStG.
In principle, a tax deduction is not possible if those affected have failed to take out a "generally accessible and customary insurance option" (R 33.2 No. 7 EStR). This includes in particular household and residential building insurance. However, these insurances only cover damage caused by flooding if elemental damage insurance is also included. Therefore, if the risk of damage could have been covered by such insurance, a tax deduction is actually not possible. In fact, however, many flood damages are not insured because those affected did not take out elemental insurance, could not obtain such insurance, or the insurance is not sufficiently high.
Since the tax deduction for household goods, clothing and building damage in the event of natural disasters is provided for in the disaster decree and this decree represents an equity regulation according to § 163 AO, the requirement of the customary insurance option should be disregarded in this case.
The finance ministries of the affected states have stated that "so-called elemental insurance is not a generally accessible and customary insurance option within the meaning of R 33.2 No. 7 EStR" (as already stated in the BMF letter of 21.6.2013, BStBl 2013 I p. 769, No. VI). Therefore, the tax offices are instructed not to refuse the recognition of damage costs due to flooding and inundation because of a lack of elemental insurance.
Here are some tax tips:
- For your expenses for the replacement of furniture, household items and clothing as well as for the repair of damage to owner-occupied houses, the tax office deducts a reasonable burden, which depends on the amount of your income, the number of children and your marital status. It amounts to between 1 and 7 percent of the total income. If this reasonable burden is exceeded, every further euro has a tax-reducing effect. Therefore, it is now particularly worthwhile to meticulously collect all receipts for medical expenses, for doctors and pharmacies, etc.!
- For craftsmen's services, you can claim the direct tax deduction according to § 35a EStG. You can deduct the labour costs as well as invoiced machine and travel costs plus the VAT on them up to 6,000 Euro at 20 %, maximum 1,200 Euro, directly from the tax liability. Make sure that you get an invoice and pay it by bank transfer only. If you claim craftsmen's services as extraordinary expenses, you can deduct the reasonable burden at 20 %, maximum 1,200 Euro, directly from the tax liability.
- Always claim your expenses in the year they are incurred in the tax return. Even if you have taken out a loan to pay for them. You can also deduct the ongoing interest on the loan - but not the repayment instalments - as extraordinary expenses in subsequent years.
- If you finance the damage costs with funds you received as a gift, you can still deduct your expenses as extraordinary expenses and do not have to offset the gifted funds against them (BFH ruling of 22.10.1971, BStBl 1972 II p. 177).
- Without waiting for the tax return, employees can have the expenses deductible as extraordinary expenses entered early at the tax office as a allowance for the monthly wage tax deduction. The entry is made in your electronic wage tax deduction features. This reduces the wage tax every month and increases the net income accordingly. Use the form "Application for wage tax reduction" for this purpose.
In addition to the aforementioned tax benefits, a whole range of other tax relief measures are planned. In addition, other federal states have also issued equity regulations for aid measures.
Even beyond the major disaster areas, severe local weather has caused significant damage. And here the question arises as to the extent to which homeowners can claim the costs of repairing the damage for tax purposes, i.e. in cases where the disaster decrees do not apply directly.
First, the principle: You can claim expenses for the repair of damage to your home due to an "unavoidable event" as extraordinary expenses according to § 33 EStG, insofar as these are not covered by insurance. There is no upper limit for the tax deduction, but you must bear a reasonable burden of between 1 and 7 percent - depending on income and marital status. The following conditions apply for tax consideration:
- The damage must have been caused by an unavoidable event: Unavoidable events include fire, flooding, storm, hail, earthquake, lightning strike, landslide, snow pressure, war, expulsion or political persecution, plane crash, avalanche, reactor accident, sudden flooding, backwater (BFH 6.5,1994, III R 27/92; BFH 29.3.2012, VI R 70/10).
- The damage must affect an existentially important area: An "existentially important area" is the home. Damage to, for example, cars, garages or outdoor facilities or damage to terraces is not taken into account.
- There must be no indications of personal fault: In the case of damage caused by "unavoidable events", such as natural disasters, personal fault is ruled out in any case.
- Realizable claims for compensation must not exist: Expenses are not unavoidable "if they can be averted by making use of other compensation options, provided that their use is not exceptionally unreasonable" (BFH ruling of 20.9.1991, BStBl 1992 II p. 137).
- There is no customary insurance option for the risk of damage: In principle, a tax deduction is not possible if those affected have failed to take out a "generally accessible and customary insurance option" (R 33.2 No. 7 EStR). This includes in particular household and residential building insurance. However, these insurances only cover damage caused by flooding if elemental damage insurance is also included. Therefore, if the risk of damage could have been covered by such insurance, a tax deduction is actually not possible. In fact, however, many flood or backwater damages are not insured because those affected did not take out elemental insurance.
If your tax officer actually comes up with this argument, you can counter as follows: This restriction does not apply to those affected by a storm disaster. The tax authorities have long agreed that "so-called elemental insurance is not a generally accessible and customary insurance option within the meaning of R 33.2 No. 7 EStR" (BMF letter of 1.10.2002, BStBl 2002 I p. 960; also BMF letter of 6.9.2005, BStBl 2005 I p. 860). The tax offices are therefore not allowed to reject the expenses due to a lack of elemental insurance.
Even in the case of insured or insurable damage, a tax deduction may be considered, for example, in the amount of an excess or for damage costs exceeding the insurable maximum amount.
Problem of underinsurance: The Cologne Fiscal Court did not recognise an excess due to underinsurance as an extraordinary expense. "Because it cannot make a difference whether someone has not taken out any insurance at all or only insufficient insurance" (Cologne Fiscal Court of 20.12.2000, EFG 2001 p. 438).
For craftsmen's services, you can claim the direct tax deduction according to § 35a EStG. You can deduct the labour costs as well as invoiced machine and travel costs plus the VAT on them up to 6,000 Euro at 20 %, maximum 1,200 Euro, directly from the tax liability. Make sure that you get an invoice and pay it by bank transfer only.
Damage to rented houses and flats is not deductible as extraordinary expenses, but as income-related expenses for rental income. In this case, the above-mentioned conditions of the "unavoidable event" and the "existentially important area" do not apply. For the self-employed and business owners, the expenses for business premises are business expenses.
(2022): CURRENT: Summer 2021 storms
When can damage to your home be deducted?
Expenses for damage repair to an owner-occupied home can be deducted as extraordinary expenses under certain conditions in accordance with Section 33 of the Income Tax Act, with the tax office applying a reasonable burden.
- Tax consideration is only possible for damage caused by an "unavoidable event", e.g. flooding, storm, hail, earthquake, lightning strike. Expenses for the rectification of construction defects are not recognised.
- The damage must affect an "existentially important area", particularly the home. Damage to cars or garages is not considered.
- There is no standard insurance option for the risk of damage. If the risk could have been covered by insurance, the tax deduction is excluded.
Fortunately, the tax authorities have decided that so-called elemental insurance does not constitute a generally accessible and standard insurance option (BMF letter dated 6.9.2005, BStBl. 2005 I p. 860). This means that damage caused by flooding, hail, or storms can be deducted even if you do not have corresponding building insurance.
The Hamburg Tax Court recently ruled that expenses related to damage caused by martens to a home are not deductible. This applies at least if the marten damage does not occur acutely and in a concentrated manner, but is tolerated over a certain period or if initially ineffective means are used to deter the marten (judgment of 21.2.2020, 3 K 28/19). An appeal against the judgment is pending before the Federal Fiscal Court, so in similar cases, an objection should be lodged and reference made to the proceedings (Ref. VI B 41/20). However, in another case concerning beaver damage, the BFH allowed an appeal (Ref. VI R 42/18). To maintain or increase the chances of success, homeowners should not only prove that material damage has occurred but also use expert reports to demonstrate that health risks existed (as also recommended by Matthias Tiemann, presiding judge at the FG, EFG 2020, pp. 837/840).
The Rhineland-Palatinate Tax Court recently ruled that costs incurred due to legal disputes related to the construction of a home are not tax-deductible as extraordinary expenses (judgment of 7.5.2020, 3 K 2036/19).
Also, see the article "Unwetterschäden 2021 steuerlich absetzbar".
(2022): When can damage to your home be deducted?
What damage to household and personal items can I claim as exceptional expenses?
Damage to your household items or clothing can be recognised as extraordinary expenses if they have been rendered unusable or lost due to a fire, theft, storm, or flood.
Condition: You must have incurred actual financial expenses; the occurrence of the damage alone is not sufficient. In the home, the main living areas, as well as bedrooms and kitchen, are particularly affected. Expenses for damage in the cellar or attic are not recognised as extraordinary expenses.
The replacement of these items must be essential, and the event that destroyed them must have been unavoidable. However, you must deduct any payments you have received from insurance or public assistance from your expenses before claiming them in your tax return.
Any residual value of the item to be replaced must be deducted; the current value counts, not the replacement value. The expenses for new purchases or repairs must be incurred no later than three years after the damage occurred.
Assets, such as paintings or expensive furniture, are excluded from reimbursement - unless they are essential items. This may apply to an expensive car if its use is indispensable for the entire family.
However, if you have not taken out household insurance against possible destruction of your household items, you cannot expect the tax office to recognise your expenses as extraordinary expenses, for example, after a fire. You must take care of the necessary protection against an unavoidable financial burden yourself. This also applies to possible protective measures against flooding, for example. However, insurance against natural hazards such as flooding or earthquakes is not among the generally accessible insurances that every homeowner must have.
You can enter the actual expenses as extraordinary expenses. However, they are not recognised in full. Your reasonable personal contribution will be deducted from this. This depends on your income, marital status, and the number of your children and is calculated by the tax office. The reasonable personal contribution amounts to one to seven percent of the total income. In any case, you should be able to prove the relevant expenses.
On 14 and 15 July 2021, a flood disaster with devastating effects occurred in Rhineland-Palatinate – particularly in the Eifel – and in North Rhine-Westphalia. On 17 July, parts of Bavaria and Saxony were also affected. At least 182 people lost their lives. Low-pressure system "Bernd" caused damage amounting to billions. Numerous places have been devastated and partially destroyed, countless people are left with nothing, having lost their belongings and seeing only the ruins of their existence.
The damage is indescribably large. Its repair leads to extraordinarily high financial burdens. The tax authorities want to help the victims and supporters with various tax relief measures. In the case of natural disasters that devastate entire regions, the tax authorities provide tax relief for the victims, which they implement on a case-by-case basis with the so-called "disaster decree".
This is also the case with the current flood disaster: The finance ministries of the states of North Rhine-Westphalia, Rhineland-Palatinate, and Bavaria, as well as other federal states, the customs authorities, and the federal government, have provided various tax relief measures for the victims of the flood and for supporters.
(2022): What damage to household and personal items can I claim as exceptional expenses?
