Private credit through renting and leasing
March 21, 2012 | 30,00 EUR | answered by Michael Herrmann
Situation:
I have income from
- employment and
- rental and leasing.
Facts: I would like to take out a loan for a "Private House" using my income from rental and leasing.
Loan: $150,000
2010 Rental and Leasing
Income: $200,000
Advertising costs: $100,000
Profit: $100,000
2011 Rental and Leasing
Income: $200,000
Advertising costs: $150,000
Profit: $50,000
2012 Rental and Leasing (planned)
Income: $200,000
Advertising costs: $150,000
Profit: $50,000
A "Two-Account Model" is not possible.
How can I use the rental income to secure the loan?
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 commitment during an initial consultation. The response is based on the description of the situation. Missing or incorrect information about the actual circumstances can influence the legal outcome.
Interest on debt in connection with the purchase or construction of a rental property, its expansion, conversion, ongoing renovation, and maintenance costs are considered costs of financing. Such financing costs are fully deductible as advertising expenses for rented buildings.
If your rental property is burdened with a mortgage or lien and the loan is used for personal purposes, such as financing a self-used apartment, the interest on debt and loan costs are not tax deductible.
It therefore depends on the sufficient connection and attribution of the financed expenses to the rental income.
The mentioned two-account model serves to clearly separate loans that finance both private and income-related expenses. This separation is a prerequisite for recognition by the tax office.
In the presented situation, income-related expenses that would need to be financed are not apparent. For example, you could finance ongoing costs, but you should not use the money from the loan disbursement for personal use. It is also critical to ensure that the rental income is sufficient to cover the rental expenses.
I hope that these explanations have given you a sufficient overview of the situation within the scope of your commitment and this initial consultation.
Sincerely,
Michael Herrmann
Dipl.-Finanzwirt (FH)
Tax consultant
