Residential use for rental purposes
March 27, 2012 | 50,00 EUR | answered by Oliver Burchardt
Dear Sir or Madam,
The situation is as follows:
I am the owner of two condominiums, both of which have been rented exclusively for private residential purposes for the past 10 years. So far, only land charges have been used to secure the financing of these loans. However, a portion of these land charges must now be released in the short term. As a replacement security, a capital-building life insurance policy (term until 2030 - no government subsidy) could be used for the first loan. For the second loan, a pension insurance policy (term until 2030 - also no government subsidy like Riester etc.) could be used. According to the statement of the house bank, a so-called "narrow purpose declaration" would then be issued in both cases. The remaining term of the loans is calculated so that they should not extend beyond the year 2030.
1. Question: Can the two insurances be used without any tax-detrimental effects? If so,
2. What could a confirmation of the residential use with the rental of these apartments look like and who can issue such a confirmation?
3. In the course of refinancing these loans, a prepayment penalty from the bank will also become due. Can these fees be claimed as advertising costs in the rental and leasing form?
4. Can these prepayment costs also be claimed, even if I were to sell the apartments before the end of the interest rate commitment?
Thank you for your support.
Dear inquirer,
Thank you for your inquiry, which I am happy to answer as part of an initial consultation.
Please note that the tax assessment is based on the information provided. Adding, changing, or omitting information can alter the result, potentially significantly.
Regarding your questions, I would like to address them as follows:
1. A tax-detrimental use cannot currently occur, as you have not yet made any use. The assignment for security purposes does not result in any payment this year. In my opinion, a tax detriment in the sense you suspect cannot occur because no government subsidy has been claimed. However, tax consequences may arise in the event of a payment. I cannot provide a definitive answer on this, as it depends on the specific terms of the contracts and the timing of the payment. If a payment is imminent, you should seek further advice.
2. The purpose declaration mentioned by the bank has a civil law character and refers to the earmarking of collateral. The declaration regarding the residential use pertains to building society contracts, where you must declare that the building society loan will not be used detrimentally. You should have the purpose declaration reviewed by a lawyer, as tax consultants are not allowed to advise you on this due to professional regulations.
3. The prepayment penalty represents interest expense when paid, which is tax deductible in the year of payment. Therefore, it is considered deductible expenses for rental and leasing income.
4. I see no issue in deducting the prepayment penalty even when selling the properties. If you sell the properties in years later than 2012, the deduction has already been made. However, even if sold in 2012, the character of the penalty as interest expense remains unchanged.
I hope I have been able to assist you in this initial consultation.
Best regards,
Oliver Burchardt
Tax Consultant
