Ask a tax advisor on the topic of Rental / Leasing

Rental to relatives

May 4, 2016 | 50,00 EUR | answered by Steuerberater Udo Glinka

I am renting out a semi-detached house to my parents. Therefore, I fall under the rental provision §21 paragraph 2 EStG (66% rule).
The city where the semi-detached house is located has a rental index for apartments. However, according to the city, this index can also be applied to other types of housing (townhouses, single-family homes). There is no separate rental index for semi-detached houses.
The tax office acknowledges the property to be in a medium residential area. According to the rental index, the monthly comparative rent is 8.20 - 9.50 euros per square meter. The tax office states that these values generally apply only to apartments and may only be partially applicable to other types of housing. Therefore, it is assumed that the rent would fall towards the higher end of the price range.
There is a brief information sheet from the Oberfinanzdirektion Rheinland (Kurzinfo Est 82/2007) on determining the local market rent for subsidized rental housing (21 paragraph 2 EStG). The basis is a Federal Fiscal Court (BFH) ruling from 17.08.2005 (IX R 10/05). According to this ruling, any rent within the range of rental prices can be considered the usual end price at the place of handover (§8 Al. 2 EStG). For simplification reasons, these principles can also be applied to the subsidized rental of apartments under §21 paragraph 2 EStG. In general, using a value within the rental price range is acceptable, even if it is the lowest value.
Does the tax office in another federal state have to consider this brief information from the OFD Rheinland, based on a BFH ruling?
Or can the tax office continue to argue that the rental index is not definitive and may only partially apply to semi-detached houses?
What course of action do you recommend for me (so far tax assessment, lodged an objection, received legal opinion from tax office with withdrawal declaration or opinion request)?

Steuerberater Udo Glinka

Dear inquirer,

based on the information provided to me, I will now give you my initial assessment.

In principle, the tax authorities 'can' follow the instructions of the OFD.

However, the underlying Federal Fiscal Court ruling did not dispute the type of building, but only the consideration of the lower limit of the rental index. The basic existence of a rental index was not contested.

Although I am not familiar with the opinion of your tax office, I assume that the position will be taken that there are no local rental indices for semi-detached houses, and therefore the one for apartments cannot be applied either.

In such a case, newspaper advertisements, real estate listings, information from other landlords renting similar properties could be cited. A expert opinion would also be possible, but is usually relatively expensive.

There is initially nothing wrong with trying to further justify the objection with the OFD instructions, even if the chances of success are rather questionable.

If you do not withdraw the objection, an objection decision will ultimately be made against you. However, you should be aware that a so-called "deterioration" is possible.

According to § 367 AO, this must be announced and the tax office must give you the opportunity to withdraw the objection beforehand.

You should check whether the aforementioned legal consequences have already occurred and review the previous correspondence accordingly.

I hope my explanations have been helpful to you.

Sincerely,

Udo Glinka (Tax Advisor)