Saving taxes when renting to family members
August 27, 2016 | 30,00 EUR | answered by StB Patrick Färber
Dear Sir or Madam,
I own a condominium which I would like to rent out at a reduced rate to my brother (a student).
From my point of view, it would be acceptable from the tax authorities if the living space is rented out above 66% of the local comparative rent (7.18 €, i.e. 4.74 €/m²). In return, expenses (depreciation, interest on debt, travel expenses to the property, etc.) can be fully deducted. This results in a loss of several thousand euros and leads to a tax saving.
From my perspective, the following advantages arise:
- affordable rent for a family member
- tax savings for me as the owner
Now my question:
What happens if, for example, losses from rental and leasing activities are generated continuously for 5 years? Will this be tolerated without further ado or will the tax case eventually be considered a hobby without the intention of making a profit?
Best regards
Dear inquirer,
if the criteria for a rental to third parties as accurately described by you are met (in particular >66% of the local market rent), an intention to generate income (refutable) will be assumed. In this case, the losses are generally accepted and no surplus forecast is required. This recognition will also be valid for several years.
However, it becomes critical if a so-called "provisional note" regarding the intention to generate income is included in the decision. Somewhere "hidden" in the explanations, one can find a sentence such as "the income from letting and leasing is provisional until it is proven that a surplus can be achieved..." (formulated in a similar way).
If this reservation is included in the decision once and in subsequent years, the tax office may retroactively withdraw the losses even years later, with an interest effect.
So, when you receive the decision, you should check whether such a note is included or not.
In general, recognition should be given. However, I recently had a case of a rental to third parties where initially a loss was incurred due to high advertising costs for reconstruction/renovation. In this case, a provisional note was included.
