(2023)
First degree: correctly deduct accommodation costs?
Expenses for a first degree after completing vocational training are deductible as - previously incurred - income-related expenses without limit. In contrast, the costs of a first degree after completing secondary education are only deductible as special expenses up to 6,000 Euro.
Since children in higher education are often not financially well-off, parents cover various expenses for their education. Landlords often prefer to sign the rental agreement for student accommodation with the parents of the student. The question is whether the child can claim the rent and the estate agent's fee as their income-related expenses or special expenses for their first degree, even though these were paid by the parents. The Lower Saxony Finance Court recently dealt with this case.
The rental agreement for the student accommodation was in the father's name. The father covered the full cost of the accommodation. According to the judges, a distinction must be made between the estate agent's fee and the ongoing rental payments. While the estate agent's fee is recognised as the child's income-related expenses, the rental payments are rejected as income-related expenses (Lower Saxony Finance Court, 25.2.2016, 1 K 169/15).
- The estate agent's fee is a service provided by the parents through an "abbreviated contract route". The parents purchase items in their own name for the child, place orders, conclude contracts, and make the required payments themselves. Since the father rented the flat for the first degree, the payment of the estate agent's fee is made in the interest of the child and their studies. The child may claim the parents' payment as their income-related expenses.
- The situation is different for ongoing rental payments. Although these are also made through an "abbreviated contract route", there is an exception here. Income-related expenses cannot be deducted if the payments are made as part of long-term debt relationships. In these cases, the third party always pays on their own account and only grants the beneficiary a right of use. A rental agreement is such a long-term debt relationship. In this case, the tax authorities refuse to recognise third-party expenses for tax purposes (BMF letter dated 7.7.2008, BStBl. 2008 I p. 717). Rental payments cannot be deducted for the son if the father signed the rental agreement and pays the rent.
The question of whether the deductibility of rent and estate agent's fees can be assessed differently in the case of an abbreviated contract route has not yet been decided by the highest court.
Until a ruling by the highest court is made, it is advisable for the rental agreement to be in the name of the student, with the parents included as guarantors rather than tenants. In this case, the parents' rental payments to the landlord are made via an "abbreviated payment route".
Furthermore, you can also make payments to the child, who can then pay the rent to the landlord (so-called cash gift).
The Federal Constitutional Court has recently ruled that the current legal regulation is constitutional. The fact that expenses for initial vocational training or a first degree cannot be deducted as income-related expenses but only as special expenses does not violate the Basic Law (BVerfG decision of 19.11.2019, 2 BvL 22/14, 2 BvL 23/14, 2 BvL 24/14, 2 BvL 25/14, 2 BvL 26/14, 2 BvL 27/14, published on 10.1.2020). Therefore, questions regarding the deduction of costs related to studies will often only arise in the case of a second or postgraduate degree or studies after completing vocational training.
