Ask a tax advisor on the topic of Other questions to tax advisors

Expenses for a home office in a sole proprietorship and a GmbH

December 27, 2009 | 40,00 EUR | answered by Michael Herrmann

Dear Sir or Madam,

I would like answers to the following questions:

Person A:
Employed full-time,
Side business: sole proprietorship,
50% ownership share of a privately acquired property with Person B (covering all costs such as heating, hot and cold water, sewer, property tax, etc. except electricity).

Person B:
Employed full-time,
Side job in the sole proprietorship of Person A on a 400€ basis,
50% ownership share of the privately acquired property with Person A (covering only electricity costs).

Person A uses a "home office" in the shared private property as the office, warehouse, screw storage, and packaging material storage for his side business 100%. This "home office" serves as the focal point of the secondary activity. The overall activity in the side business includes approximately 80% in the home office and 20% in fieldwork.
Can Person A deduct expenses for the home office? For example, is it possible to include the ongoing costs for the home office in the income-expenditure calculation as operating expenses?
or
the possibility of renting this room only from Person A to his own sole proprietorship (even though Person B owns 50% of the room) or vice versa (rental by Person B to the sole proprietorship of Person A)?
If it is possible to deduct the home office through rental for tax purposes, would rental income occur for Person A or B in the income tax return, and how can the ancillary costs be offset?
Example:
Sole proprietorship pays: 2400€ rent per year to Person A or B
A total of 2000€ in room costs are incurred (electricity, interest, property tax, etc.)
Can Person A or B then deduct the total costs, or only 50% of the costs due to the ownership relationship, or only the costs that the respective person (Person A: all costs except electricity; Person B only electricity costs) has actually paid?

In 2010, a limited liability company (UG) "limited liability" is founded by Person A and Person B, for which no other space is available other than the current "home office".
The rental should also only be done by one person to the UG - is this possible due to the ownership relationship (each 50%)? How does it work with the ancillary costs, as these are shared, with Person A covering all ancillary costs except electricity and Person B only electricity. Can one person of the UG still claim the total ancillary costs as an expense in the income tax return?
If the rental must be done jointly by Person A and B to the UG, can the ancillary costs only be billed by the person who actually paid them, or can both landlords simply claim half of the ancillary costs each?

Michael Herrmann

Dear inquirer,

First of all, thank you very much for your inquiry, which I would like to answer based on the information provided and in the context of your involvement in an initial consultation. The response is provided in accordance with the description of the situation. Missing or incorrect information about the actual circumstances can affect the legal outcome.

Expenses for the home office are generally not deductible according to current legislation. They are only deductible if more than 50% of your professional and business activities are carried out there and no other workplace is available. These conditions are apparently not met, as the business is only conducted on a part-time basis.

However, it is not clear from the description whether the home office is integrated into the private residence. Only then is it considered a home office. If you do not live in the property yourself, it is not considered a home office, even if it is located in a "private property."

Renting to your own sole proprietorship is not possible. However, it would be possible to make rental payments to co-owner B, to the extent that the usage pertains to his ownership share (50%). In this case, 50% of the costs, i.e. the expenses paid to B, would be deductible. Keep in mind that B would then generate rental income and would have to pay taxes on the reimbursement received.

The proposed option of renting to the UG is also possible, as the tenant and landlord are different individuals. The rental would then be made by the joint ownership (100%) to the UG. The joint ownership would also generate rental income.

It should be noted that depending on the specific circumstances, a so-called business split may arise, where the home office is classified as commercial business assets. This would, among other things, result in future value increases being added to the profit, leading to tax disadvantages that need to be considered in an overall assessment. For a more detailed evaluation of the situation, you should consult a local tax advisor.

I hope that this information has provided you with an initial overview of the situation and remain

Yours sincerely,

Michael Herrmann
Dipl.-Finanzwirt (FH)
Tax Advisor