Sale of a previously rented property
July 5, 2009 | 15,00 EUR | answered by Irmingard Huber-Stempfel
We sold a rented single-family house in 2007, which was financed with borrowed capital, at a loss (remaining debt of 80,000.00 euros). Can the loan or the interest on this remaining loan be claimed for tax purposes?
Dear inquirer,
I am happy to answer your question based on the facts you have presented, taking into account your contribution. I would like to point out that this response serves as an initial orientation regarding the current legal situation and does not replace a possible personal consultation with a tax advisor of your choice. Adding or omitting information may influence the legal assessment. With these notes in mind, I will provide you with the answer to your question:
1. The deductibility of interest expenses as advertising costs is regulated in § 9 paragraph 1 no. 2 EStG. The prerequisite for deduction is an economic connection to a category of income. Your interest expenses are undoubtedly related to the category of income from rental and leasing.
2. The connection also exists in principle even if no rental income was generated in the assessment year in which interest expenses are claimed. It is undisputed and acknowledged by the tax authorities that anticipated advertising costs - anticipated interest expenses can be deducted.
3. Unfortunately, there are very controversial older judgments of the Federal Fiscal Court regarding the deduction of interest expenses after the sale of the property. This case law is not convincing in literature as it is inconsistent with the system. Recently, the tax courts have deviated from the Federal Fiscal Court's case law.
In the literature, the opinion is relatively clear for the deduction of interest expenses that arose subsequently.
I would recommend to the tax office to include the subsequent interest expenses (attachment V) and provide a clear and solid argumentation regarding the amount of debt at the time of sale, as well as the remaining balance. Then, I would point out the economic connection to the former rental activity. In my previously prepared tax returns, this approach has worked. However, it is essential that the proceeds from the sale were used to repay the debt. If the tax office rejects this, it is worth appealing to the tax court. Firstly, the issue arises every year, and secondly, a significant amount of money can be saved if the interest expenses are recognized. The argument for recognition as advertising costs is the economic connection to the former rental activity. (Text § 9 paragraph 1 no. 1 EStG) The EStG can be downloaded from the website of the Federal Ministry of Justice.
Best regards,
Irmingard Huber-Stempfel
Tax advisor - Attorney
