Too much income tax
January 20, 2011 | 50,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
We have 5 properties with 18 rental units outside of our place of residence. My husband is not self-employed or employed, but privately insured. He is a construction worker, his job is to renovate, repair, and manage these apartments. He is busy every day with the 18 apartments, driving many kilometers, and is fully occupied. However, all these work activities cannot be taken into account by the tax office. Even the daily travel costs that he incurs, the tax office no longer wants to recognize. But if he were to start his own business as a property manager or construction company, according to the tax office, he cannot issue invoices for his own properties. Since we also have a loan for each property, which is covered by the rents, but only the interest is deductible in the tax return, and all rental income is taken into account, there is not much left for us in the end. A friend suggested that maybe we could establish a company where the properties are included, perhaps then invoicing would be possible? Maybe someone can give us a tip on how my husband can claim his work for our properties. Maybe a form of self-employment after all? So far, our tax office has not been able to help us. We hope someone here can help us, who is familiar with taxes and legal forms. There must be a way, right? It would be nice if we could receive a helpful answer. Best regards, I. H.
Dear client,
Thank you for your inquiry, which I would like to answer based on your information and in the context of your involvement in an initial consultation as follows:
I assume that income from renting out properties is generated through the rental and leasing of objects. The income is determined in such a way that a positive surplus of rental income over advertising costs is subject to income tax.
Self-performance by your husband as a landlord, provided through his own work, does not constitute expenses from a tax perspective and therefore cannot be deducted for tax purposes (BFH 01.10.1985 IX R 58/81). Only when you engage a third party or an external company, the payments made to the third party are deductible as expenses, as an expense has been incurred. The expenses for materials are definitely deductible as advertising costs.
Your husband's work could be invoiced if, for example, he establishes a property management company or construction company in the form of a corporation (GmbH). However, this company would then become a new taxable entity that must also pay taxes to the tax office, including corporation tax, trade tax, and sales tax. In addition, your husband would have to work as an employee, resulting in income from employment.
Self-performance cannot be tax-deductible in terms of value because there is no expense against it. If there were an expense against it, i.e. if the work was paid for by you, the service provider would have to pay tax on their income, and the recipient of the service could then claim this service for tax purposes. Since in your case the recipient and the service provider are the same, such a scenario is not feasible and would not benefit you. Therefore, your tax advisor's statement is correct.
The travel expenses are definitely deductible as advertising costs within the framework of travel expenses. Travel expenses include:
- Travel costs
- Additional expenses for meals
- Overnight accommodation costs
- Other travel expenses
I regret that I cannot provide you with a positive answer, but I hope that I have been able to help you nonetheless.
Best regards,
Ulrich Stiller
Tax advisor/Diploma in Business Administration
