Ask a tax advisor on the topic of Rental / Leasing

Unexpected windfall from the tax office

January 23, 2022 | 50,00 EUR | answered by Steuerberater Knut Christiansen

We are employees and bought a house in mid-2019 and paid accordingly. The previous owners contractually reserved a one-year right of residence against payment of rent. From mid-2019 to mid-2020, we received rent payments, after which the previous owners moved out and we moved into the house ourselves.

For the tax return in 2019, I declared the rental income (a total of 4 months), but also deducted the total costs of the house proportionally for 4 months. Overall, it resulted in a loss and consequently a tax refund. The tax office accepted this conditionally (!), but said the final decision would only be made with the 2020 tax return when the "profit-making intention" would be determined.

For the year 2020, we received rent for 7 months and therefore deducted the costs of the house for 7 months. Overall, there was a profit due to the rental income, which we duly declared. The result after our tax return was a payment of about 800 euros.

Then the surprise:

The tax office, contrary to our declaration, deducted the costs of the house for a full 12 months and not just - as stated - for 7 months. The result was accordingly an overall loss, which instead of a payment, gave us a joyful refund. The tax assessment for 2020 also came with the assessment for 2019, which is now apparently final.

Therefore, we have deducted more than we were supposed to (in my understanding), we have not made any profit with the rent according to the tax office's calculation, we have fully deducted the losses, and have just received an unexpected windfall in our account.

My question: What do I do now? Is the tax office correct or did they make a mistake?

If the latter: Do I need to respond in any way? Could there be any nasty surprises awaiting me? Or should I just do nothing? Could there still be a demand for repayment?

Steuerberater Knut Christiansen

Hello and thank you for using ask-einen.com!

Basically, you would not be obligated to inform the tax office about the error in the tax assessment if you have correctly provided the data and information in Annex V. As you described it, it would have been correct if you had only included the costs until the end of the rental period in 2020 for a pro rata rental. An additional deduction of advertising costs is generally not possible because there was no longer an intention to rent out due to self-use afterwards.

The tax office cannot subsequently worsen the decision in this sense because you have provided correct information. Subsequent knowledge from the tax office is also not available here because the information provided by you was correct. Therefore, the tax office can only make changes if the decision was made under reservation of audit according to § 164 AO. If this note is not included on page 1 of the decision, you can assume that the decision cannot be changed to your disadvantage.

I hope this answers your question, if not, please feel free to contact me again.

Best regards and have a great Sunday!

Knut Christiansen
Tax advisor