In 2015, a married couple from the southern Palatinate region commissioned a solid construction company to build a two-family house with a basement. The residential property was to be built on a plot of land owned by the couple. However, already during the construction phase, defects became apparent that were due to errors during the planning phase. Serious execution errors also became apparent.
The couple filed a lawsuit against the construction company. As the court and legal fees alone amounted to around 13,700 euros in 2017, the owners claimed the legal costs as so-called extraordinary expenses in their 2017 income tax return. As a basis, they referred to Section 33 of the Income Tax Act. According to this, certain unforeseen costs can be deducted from tax. Insolvency proceedings were opened in 2018.
However, the Rhineland-Palatinate Fiscal Court (AZ 3 K 2036/19) is of the opinion that legal costs incurred in connection with construction defects on a home do not qualify as extraordinary expenses. This is because even if the amount of the costs represents a major financial burden, the livelihood of the spouses is not threatened. Since both spouses are gainfully employed and occupy a rented apartment in which they cover their housing needs, there is no need to cover vital needs. According to the ruling of the tax court, neither the building plot is essential to life nor are the expenses extraordinary. Likewise, the couple could sell the property.
Source: FG Rhineland-Palatinate
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