Rental: Travel to rental property usually fully deductible
Landlords frequently need to travel to their rental property to check on things, carry out renovations, resolve issues with tenants, attend viewings with prospective tenants, do gardening, etc. According to Section 9 (3) of the Income Tax Act, the same rules apply to trips related to rental income as for employees travelling to their workplace.
Therefore, the travel allowance applies if the rental property is considered the primary place of work. But when is this the case? Currently, the Federal Fiscal Court has ruled that landlords can usually deduct trips to their rental properties as business expenses using the business travel allowance of 0.30 Euro per kilometre travelled. This is because, in most cases, a landlord visits the rental property only at irregular intervals, for example, for inspections, administrative tasks, repairs, tenant changes, or meter readings (BFH ruling of 1.12.2015, IX R 18/15).
Exception: However, if the rental property is exceptionally considered the landlord's regular place of work, only the less favourable travel allowance of 0.30 Euro per kilometre (0.35 Euro from the 21st kilometre) applies. This is because, similar to an employee, a landlord can have a regular place of work at the rental property if they visit it not only occasionally but with a certain regularity and continuity. This is the case with an unusually high number of trips and practically daily presence (BFH ruling of 1.12.2015, IX R 18/15).
The case: A landlord renovated several flats and an apartment building and visited the construction sites set up for this purpose 165 and 215 times a year, respectively. Due to the large number of trips to the two properties, the tax office concluded that the landlord had his regular place of work at the rental properties. Therefore, the travel costs were only deductible at the rate of the travel allowance, according to the tax office. The BFH agreed with the tax office.
The Cologne Fiscal Court also recently commented on the issue (judgment of 19.2.2020, 1 K 1209/18). The case: The taxpayer owned two apartment buildings. He claimed his trips to both properties with the actual costs. He assumed a primary place of work at each property. The Cologne Fiscal Court ruled: A primary place of work is where the landlord carries out at least one-third of their activities. The travel expenses are always incurred by both properties. However, the costs of travel between the properties should be based on the actual costs or 0.30 Euro per kilometre travelled. These are not trips between home and the primary place of work but between two primary places of work.
If you partially build a property yourself, the travel costs to the construction site are part of the building's construction costs. These trips should not be calculated with the travel allowance but with the business travel allowance of 30 cents per kilometre travelled or the actual costs. The BFH clarified this 20 years ago (BFH ruling of 10.5.1995, IX R 73/91).
(2022): Rental: Travel to rental property usually fully deductible
What are income-related expenses in connection with the rental 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 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 out. 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 may revoke the deduction of income-related expenses.
(2022): What are income-related expenses in connection with the rental and leasing of a property?
Which costs can I deduct as income-related expenses?
If you rent out a property, you can deduct all expenses related to the property as income-related expenses. These include, among others:
- Property tax
- Loan interest
- Depreciation
- Insurance premiums
- Costs for electricity, water and heating, sewage, waste disposal, etc.
- Expenses for caretakers and property management
- Cosmetic repairs
- Costs for furniture in furnished rentals
- Travel expenses to the property
You can also declare service charges settled with the tenant as income-related expenses if they are included as income in the tax return.
(2022): Which costs can I deduct as income-related expenses?
Can a home office be deducted for rental activities?
The management of property or substantial capital assets is not considered an "occupational or business activity", but the regulations of § 4 para. 5 no. 6b EStG regarding the home office apply accordingly (§ 9 para. 5 EStG). This means that to determine the centre of activity, the focus is not on "the entire business and professional activity" but on "the entire income-generating activity" of the taxpayer (BFH ruling of 27.3.2009, BStBl. 2009 II p. 850).
Therefore, if you have a main job and also carry out administrative work in your home office, you have "no other workplace" for this. If you do not have a job but use the home office exclusively to manage your assets, it could potentially be the "centre" of your activity.
A home office is only recognised by the tax authorities if it is actually "necessary" for generating income. The authorities rely on an older BFH ruling of 27.9.1996 (BStBl. 1997 II p. 68). Therefore, the assets must be of a certain size for the exclusive use of the home office for administrative work to be credible. HOWEVER: The Federal Fiscal Court has recently changed its view. The "necessity" of the home office is no longer relevant. The "necessity" is not a criterion for deduction. Therefore, a home office can be deductible if the room is used almost exclusively for professional purposes. The amount of time spent on office work is irrelevant (BFH ruling of 3.4.2019, VI R 46/17).
Therefore, a home office used for managing property can be deductible as income-related expenses for rental income if the room is used almost exclusively for administrative work. However, if a home office is not used almost exclusively for income-generating purposes, the costs of the home office cannot be deducted as income-related expenses, even partially.
The BFH rejects a cost split and a partial deduction of income-related expenses (BFH ruling of 16.2.2016, IX R 23/12).
The case: A pensioner with a retirement pension and capital income manages 2 rental properties with 9 flats and 5 garages, which are rented to people other than the tenants, in a home office. Here, the home office is not the "centre", so only the limited deduction of income-related expenses up to 1,250 Euro is possible (provided the room is used only for rental purposes). However, as the room was also used 40 per cent for private purposes, the Federal Fiscal Court did not recognise the home office costs as income-related expenses, not even 60 per cent.
(2022): Can a home office be deducted for rental activities?
