Manager's apartment
April 6, 2010 | 25,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
Hello,
Situation: Construction of a new house as the farm manager's residence in 2008/2009 (agriculture), takeover of the farm will only happen when the father retires. To refinance, we have added a separate apartment which has been rented out since 01.12.09. (We are aware that a farm manager's residence should not generate profit...) Fortunately, the tax office has not commented on this so far.
We are two borrowers (not married yet), owners of the house, but only one of us is the landlord of the apartment. In the tax return, we have only provided information about the rental, construction costs, loan costs, etc. for the owner. Now the tax office is requesting proof that the owner has paid the interest payments alone. This is not the case, as we are engaged and have a joint account, and are also joint borrowers. Additionally, the tax office is asking for an explanation as to why the declared construction costs are lower than the loan amount. Of course, we do not have invoices for all the work done, as many friends have helped and received a "compensation for expenses". How can we explain all of this to the tax office without getting into trouble? Thank you for your message.
Dear client,
Thank you for your inquiry, which I would like to answer based on your information and in the context of your commitment in an initial consultation as follows:
Interest on debt
Interest on debt is deductible as advertising costs for rental and leasing income if the loan is used to finance acquisition or production costs, maintenance expenses, or other advertising costs for rented properties. The owner of the property who also rents it out can deduct the interest on debt. Therefore, the tax office may request the required proof. The interest on debt of your partner is not deductible. The tax authorities can refer to the Federal Fiscal Court judgment of 04.09.2000 (IX R 2307) because the interest payments are expenses of a third party. Whether anything can still be arranged afterwards is only possible after reviewing the complete documentation.
Production costs are lower than the borrowed amount
Here you should have checked the matter BEFORE submitting the income tax return. If the loan exceeds the production costs, the interest is not deductible to that extent. This raises the suspicion of undeclared work. A reliable statement can only be made after reviewing the complete documentation. In particular, it will be necessary to verify the difference between the production costs and the loan amount.
Unfortunately, you will have to seek detailed advice from a tax advisor and have the matter examined, as you have made false statements in the income tax return, which can lead to criminal consequences.
Best regards,
Ulrich Stiller
Tax advisor/Diploma in Business Administration
