Taxation of a temporarily used second home as a rented condominium
May 26, 2020 | 60,00 EUR | answered by Steuerberater Knut Christiansen
I bought a condominium. The previous elderly owner asked me if he could stay in the apartment for a few more months over the winter. Since I didn't want to refuse his request, the sales contract was notarized in the summer of 2019, but the purchase price was only transferred upon his move-out in the spring of 2020. This means that the purchase ancillary costs were paid in 2019 (notary, real estate transfer tax, broker, etc.), but the purchase price was as described only paid in 2020.
1. Question:
I cannot find a way in my tax program to separately account for these payments in the tax return. What is the best way to proceed? Do I need to separate them or can I include everything in the 2020 return?
After transferring the purchase price in 2020, I registered the apartment as a second residence (as a small part of the bank loan was financed through the KFW Bank Program 124 and my wife and I initially planned to occasionally use the apartment during the week to reduce commuting to our main residence, which is twice as large and located near our workplaces.
However, we have now had a child and our entire professional and personal situation has changed significantly. By registering the second residence, I wanted to fulfill the conditions of the KFW (owner-occupied as a second residence), but due to the changed life circumstances, I would like to rent out the apartment in the future. The KFW Bank confirmed to me over the phone that the conditions of the KFW Program 124 must be met once when obtaining the credit, but changes in life situation are normal and they are generally okay with a different use of the apartment.
2. Question:
Can I treat the apartment completely as if it were a rental property, even though I registered it as a second residence for 2-3 months during the renovation period? I would deregister it for myself as soon as I have a tenant and would like to deduct the renovation costs in my tax return as advertising costs and claim the 2-3 month renovation period as vacancy. The rental income will likely be 1200 euros.
Good evening and thank you for using ask-einen.com!
I would like to answer your questions as part of an initial consultation.
Regarding the 1st question:
Basically, these costs are considered part of the acquisition costs of the property. This means that they must be allocated between land and building substance as part of the purchase price allocation. The share of the building substance can then be claimed as depreciation (2% per year) for tax purposes, provided there is an intention to generate income. Since no rental has taken place in 2019, no advertising costs can be claimed for 2019. This would generally be possible from 2020. Therefore, you will need to consider these amounts as part of the acquisition costs of the property for your 2020 tax return.
Regarding the 2nd question:
Basically, there is an intention to rent out regardless of registration. Actual use has not taken place despite registration, if I understand correctly. In the event of an inquiry from the tax office, you would need to credibly assure that there has been no private use. Please also check if deregistration can already take place now. Therefore, the renovation costs could be claimed as anticipated advertising costs (maintenance expenses). You may need to prove the intention to rent out to the tax office, typically through apartment listings or the involvement of a real estate agent. However, it should be noted that maintenance costs in the first three years after acquiring the property only lead to immediately deductible expenses if these costs do not exceed 15% of the building acquisition costs. Otherwise, exceeding this threshold would result in all renovation costs being classified as acquisition-related production costs. As a result, these costs can only be claimed through depreciation at 2% per year. Please make sure not to exceed the 15% threshold.
I would like to point out that this forum cannot replace personal advice, but can only serve as an initial tax assessment. Missing or incomplete information can alter the legal outcome.
If you have any further questions, please feel free to contact me.
Best regards,
Knut Christiansen
Tax Advisor
