SteuerGo FAQs

(2022) Reduced-rate rental: Comparative calculation with apportionable service charges

Flats are often rented to relatives at a price below the local market rate. Such discounted rental is advantageous for tax purposes because, on the one hand, only lower rental income needs to be taxed and, on the other hand, expenses can be fully deducted as income-related expenses.

There is an important change from 1 January 2021:

• If the agreed rent is at least 66% of the local market rent, the expenses can be fully deducted as income-related expenses.
• If the agreed rent is between 50% and 66% of the market rent, the intention to generate income must be checked, and a profit forecast is required:
• If the profit forecast is positive, the income-related expenses can be fully deducted.
• If the profit forecast is negative, the income-related expenses must be apportioned and can only be partially deducted.
• If the agreed rent is less than 50% of the local market rent, the use must be divided into a paid and an unpaid part. Expenses can only be deducted as income-related expenses in proportion to the paid part.

The Federal Fiscal Court has clarified that for the comparison calculation, "local rent" means the gross rent or warm rent. Therefore, the costs that may be passed on according to the Operating Costs Ordinance must be added to the comparable net rent (BFH ruling of 10 May 2016, IX R 44/15).

The "local market rent" includes the net rent plus the apportionable costs for flats of comparable type, location, and equipment.

The costs apportionable according to the Operating Costs Ordinance include, in particular, property tax, costs for water and sewage, heating, street cleaning and waste disposal, lighting, garden maintenance, chimney cleaning, property and liability insurance, and for the caretaker (§ 2 BetrKV). Costs for maintenance and repair are not included according to § 1 BetrKV. Therefore, the warm rent paid is compared with the local warm rent (as also stated in R 21.3 EStR).

The calculation method with warm rents is more favourable for landlords than the calculation with net rents. Including operating costs is advantageous because the apportionable costs make up a significant part of the costs compared to the net rent and are regularly fully borne by the tenant even in the case of discounted rental.

Currently, the Federal Fiscal Court has ruled that when renting furnished or partially furnished flats, a furniture surcharge must generally be applied, as such rentals are regularly associated with an increased utility value, which is often reflected in a higher local rent. However, such a furniture surcharge may only be taken into account if it can be determined from a local rent index or from surcharges achievable on the market. Determination in any other way is not permitted (BFH ruling of 6 February 2018, IX R 14/17).

 

The local rent can generally be found in the local rent index. But what applies if there is a comparable flat in the same building that is rented to third parties and the rent differs from the local rent index? Should the comparison rent be used for checking the 50% or 66% threshold, or still the rent index?

In October 2019, the Thuringia Finance Court ruled that for the comparison with the local market rent, the rent charged by the landlord to a third-party tenant using a comparable flat in the same building should be used (ruling of 22 October 2019, 3 K 316/19). An appeal was lodged with the Federal Fiscal Court against the ruling. And lo and behold, the landlord was successful.

According to the highest financial judges, the local market rent for checking the 66% threshold is generally to be determined based on the rent index. If a rent index cannot be used or is not available, the local market rent can be determined by an expert opinion, by information from a rent database, or by using the rents for at least three comparable flats (BFH ruling of 22 February 2021, IX R 7/20).