(2022) Can tax reductions for household-related services also be claimed in a care home?

There is a tax benefit for household-related services. Household-related services mainly include domestic activities that are usually carried out by members of the private household and for which a self-employed service provider is hired.

Care and support services are also eligible. Expenses for care and support services can be deducted directly from the tax liability at 20%, up to a maximum of 4.000 Euro per year (§ 35a para. 2 EStG). The tax benefit is available not only to the person in need of care but also to relatives if they pay for the care and support services.

The tax benefit can also be claimed by people living in a retirement home, nursing home, or residential care facility. Two cases must be distinguished here:

(1) Accommodation in a home with own household:

The tax benefit according to § 35a EStG is possible if an independent and self-contained household is maintained in the home. A household in a home exists if the premises are equipped for household management (bathroom, kitchen, living and sleeping area), can be used individually (lockable), and the resident's own management can be proven or credibly demonstrated. This is only the case if the resident lives in a flat, not if it is merely a care room without cooking facilities.

Eligible are services provided by the home operator,

• which are provided directly in the resident's household (flat) and billed individually, such as cleaning the flat, care and support services.
• which the home operator provides according to the home contract and which are billed either as a lump sum or individually, especially caretaker work, garden maintenance, minor repairs, cleaning of communal areas, services of house and floor staff.
• which are used by the resident if required, provided proof is provided. This applies to services provided by the home operator, possibly using their own staff, as well as services from an external provider. Costs charged as a lump sum by the home operator are also eligible, provided it is proven that the service paid for was actually provided to the resident.

(2) Accommodation in a home without own household

For the tax benefit according to § 35a EStG, it is not absolutely necessary for there to be an own household in the home. Even when staying in a room only, such expenses are eligible if they are comparable to those of a household help. Care and support services are not comparable to household help.

Eligible are, for example, the proportional costs for

• cleaning the room, apartment, and communal areas,
• preparing and serving meals in the home,
• laundry service, as long as it is done in the home.

Not eligible are

• expenses for services not provided on-site in the home, e.g. for laundry and ironing at the service provider's premises or for "meals on wheels" delivered from outside.
• rental payments, such as general expenses for accommodation in a retirement home, nursing home, or residential care facility.
• expenses for the caretaker, gardener, and for craftsmen's services. These can only be deducted if there is an own self-contained household.
• care and support services outside the own household, e.g. in a care room. These can be claimed as extraordinary general expenses with a deductible.

Tip: It is common for tenants and especially residents of nursing homes, retirement homes, or senior residences to have to pay lump sums for cosmetic repairs or maintenance work. Sometimes the affected parties also receive certificates showing the lump sum payments. However, if an attempt is made to claim the tax reduction under § 35a para. 3 EStG for craftsmen's services, they usually encounter a negative response from the tax authorities - and unfortunately rightly so. In the Federal Fiscal Court ruling of 05.07.2012 (VI R 18/10, BStBl 2013 II p. 14), it states: "If the tenant ... makes lump sum payments to the landlord for the execution of cosmetic repairs, these are not expenses for craftsmen's services within the meaning of § 35a para. 2 EStG if the payments are made regardless of whether and to what extent the landlord actually commissions repairs to the tenant's flat." Therefore, the recommendation can only be given that the landlord actually lists the work carried out individually and bills the tenant. However, it must be admitted that probably in many cases neither the tenant nor the landlord is interested in such billing.

In 2019, the Federal Fiscal Court unfortunately - against the generous attitude of the tax authorities - decided that the tax reduction according to § 35a EStG is only granted for expenses incurred by a taxpayer for their own accommodation in a home or for their own care. However, the tax advantage is excluded for expenses incurred for another person, i.e. if children cover the costs for their parents (BFH ruling of 3.4.2019, VI R 19/17).

A few months after the BFH ruling, the Berlin-Brandenburg Finance Court also dealt with the assumption of care costs for a parent. This time, however, it was not about the assumption of costs for inpatient care, i.e. for accommodation in a home, but about the assumption of costs for outpatient care. The FG decided as follows: § 35a EStG favours - if at all - only expenses for the outpatient care of relatives in the taxpayer's own household (i.e. the carer's), not for the outpatient care of relatives in their household (BFH ruling of 11.12.2019, 3 K 3210/19). However, a revision was explicitly allowed at that time. And now the positive ruling of the BFH is available.

The Federal Fiscal Court has now ruled as follows: The tax reduction according to § 35a para. 2 sentence 2 first half-sentence EStG can also be claimed by taxpayers who incur expenses for the outpatient care and support of a third party. Consequently, children can deduct the costs for outpatient care of their parents if they have borne the costs. This also applies if the care and support services are not provided in the taxpayer's own household but in the household of the person being cared for or supported (BFH ruling of 12.4.2022, VI R 2/20).

However, the BFH also complicates matters, as it upholds its above-mentioned ruling from 2019. It distinguishes between the assumption of costs for inpatient care (= still not deductible) and the assumption of costs for outpatient care (= deductible), where in the second case it depends on who concluded the care contract. Only if the payer, usually daughter or son, is contractually obliged, i.e. pays on their own debt, are the costs deductible. If, on the other hand, payment is made on the debt of the person being cared for, i.e. father or mother, because they concluded the care contract, it is a tax-irrelevant third-party expense.