Ask a tax advisor on the topic of Real estate taxation

Rent out a condominium and also look for a rental apartment for yourself.

January 18, 2021 | 30,00 EUR | answered by Steuerberater Knut Christiansen

Hello dear tax advisor,

I would like to know if it is worth it for me to rent out my condominium and live in a rented apartment myself.

Details:
Currently, my wife and I live in a self-occupied condominium in Upper Bavaria. We are 36 and 28 years old and together earn approximately 140,000€ gross annually. We do not have children yet, but they are planned for the future.

The property cost approximately 380,000€ (built in 2000), with the land value estimated at around 95,000€.
The monthly loan installment for the bank is 1,500€, with the interest portion being around 500€ and the 1,000€ repayment.
The realistic monthly rent for the apartment is 1,050€.

We would move to an apartment with a rent identical to the current one for simplicity. In this case, I would take my personal tax rate of 42%, which means I would have to give approximately 430€ of the 1,050€ in rent. At the same time, I can deduct both the 500€ interest and 2% annually of the property costs, which according to my calculations is approximately 560€ per month (1% of 380,000€ - 95,000€ * 2).

Although this may be legally incorrect, in my understanding, this would mean that the gross rental income and net rental income are the same for me.

Based on the current numbers, I would say it breaks even, meaning I could do it, but I don't really have an advantage. However, there is a renovation (not eligible for grants or deductions) estimated at 35,000€, and the tax refund for this would, in my opinion, finance the rent for a year in another apartment.

In the long term, within the next 5 years, the apartment would be too small anyway, which is why we would rent it out. The question is whether it makes sense to bring forward the moving date due to the planned renovation.

Thank you in advance for your assistance on this matter.

Steuerberater Knut Christiansen

Good day and thank you for using ask-a-pro.com!

I would like to answer your question as part of an initial consultation.

Basically, the tax situation would look like this:

Rental income per year: 12,600 EUR
Depreciation: 285,000 EUR x 2%: - 5,700 EUR
Interest: 6,000 EUR per year
= Surplus approx. 900 EUR per year

If there are any other advertising costs that are not to be borne by the tenant (annual maintenance, management costs), it would be approximately correct that you have +/- = Euro income. So you wouldn't have to pay taxes, but you also wouldn't have any tax benefit from any losses.

Of course, if you incur maintenance expenses during the rental period, you can claim these costs for tax purposes. With maintenance costs of around 35,000 EUR and an average tax rate of 42%, you would save about 14,700 EUR in taxes. Therefore, it would make sense to move earlier. It is also possible, by the way, to evenly distribute larger maintenance costs over 2-5 years within the scope of the rental.

I hope I have answered your question, otherwise please feel free to contact me with your follow-up question.

Best regards!

Knut Christiansen
Tax advisor