How does value added tax work for renting and leasing?
July 9, 2022 | 40,00 EUR | answered by Lorenzo Hartmann
Dear tax advisor,
my name is Wilhelm Fuchs and I rent out my condominium on a part-time basis. So far, I have not delved deeply into the topic of value added tax in relation to renting and leasing. Now I am unsure about how to correctly handle the VAT and what impact this will have on my income tax return.
Currently, I am renting out my furnished apartment to a student for a monthly rent of 500 euros. Additionally, I have had some renovation work done in the apartment this year, for which I would like to claim input tax. I intend to declare my rental income as income from renting and leasing in my tax return.
My concern is that I may make mistakes in calculating the VAT, leading to potential tax disadvantages. Therefore, I request a detailed explanation of how VAT works in renting and leasing and how to correctly handle it. Are there any specific considerations I should be aware of? Which forms do I need to fill out and submit?
I thank you in advance for your support and hope for a clear and understandable explanation that will help me manage my tax affairs correctly.
Sincerely,
Wilhelm Fuchs
Dear Mr. Fuchs,
Thank you for your inquiry regarding the value-added tax (VAT) related to the rental of your condominium. I am happy to explain to you how to correctly handle the VAT and its implications on your income tax return.
In Germany, the rental of residential space is generally subject to VAT if the landlord rents out more than 50% of the total usable area of the building. Since you rent out your furnished condominium, this rule applies to you. The standard VAT rate is usually 19% on rental income. In your case, with a monthly rent of 500 euros, you would therefore calculate and remit 95 euros of VAT to the tax office each month.
However, there is an option for VAT exemption if your turnover in the year is below the small business threshold of 22,000 euros. In this case, you can apply for exemption from VAT. It is important to note that you must choose whether to be subject to or exempt from VAT and indicate this in your VAT return.
If you wish to claim input tax for renovation work in your apartment, you must provide an invoice with VAT shown. You can then claim and offset the input tax in your VAT return.
Regarding your income tax return, you must declare the income from rental and leasing. You will use the appropriate form to list all income and expenses related to your rental. The VAT you remit to the tax office will also be taken into account here.
It is important that you carefully document all income and expenses related to your rental and retain all relevant documents. In case of uncertainties or more complex matters, I recommend seeking assistance from a tax advisor who can help you with the correct handling of your tax affairs.
I hope this explanation helps and answers your questions. If you need further assistance, I am at your disposal.
Best regards,
Lorenzo Hartmann
