(2023)
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 rentals are 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 was an important change on 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. Consequently, 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 condition.
The costs apportionable according to the Operating Costs Ordinance include, in particular, property tax, water and sewage costs, heating, street cleaning and waste disposal, lighting, garden maintenance, chimney cleaning, property and liability insurance, and caretaker costs (§ 2 BetrKV). Maintenance and repair costs are not included according to § 1 BetrKV. Therefore, the warm rent paid is compared with the local warm rent (see also R 21.3 EStR).
The calculation method with warm rents is more advantageous for landlords than the calculation with net rents, as it includes operating costs. These costs represent a significant part that the tenant usually fully bears even in the case of discounted rental.
The Federal Fiscal Court recently ruled that when renting furnished or partially furnished flats, a furniture surcharge is generally to be taken into account. Such rentals often come with increased utility, which is often reflected in higher local rents. However, such a furniture surcharge is only acceptable if it can be derived from a local rent index or realisable market surcharges. Other methods of determination are not permitted (BFH ruling of 6 February 2018, IX R 14/17).
Regarding the examination of the 50 or 66 percent threshold for the local rent, there is the question of whether to refer to the local rent index or the rent of a comparable, externally rented flat in the same building. The Thuringian Finance Court decided in October 2019 that the rent of a comparable externally rented flat in the same building should be used (judgment of 22 October 2019, 3 K 316/19). However, this judgment was appealed before the Federal Fiscal Court, and the landlord was successful.
The highest financial judges clarified that the local market rent for checking the 66 percent threshold should generally be determined based on the rent index. If no rent index is available or does not exist, the local market rent can be determined by expert opinions, information from a rent database, or by the comparative rents of at least three similar flats (BFH ruling of 22 February 2021, IX R 7/20).
