Losses from the rental of properties with a living space of more than 250 square meters cannot be automatically offset against other income of the taxpayer. This applies in particular to luxury properties whose market rent does not adequately reflect the high residential value and the associated costs, which often makes it impossible to cover the costs of letting. This was recently decided by the Federal Fiscal Court (Bundesfinanzhof, BFH) (case reference: IX R 17/21).
In this particular case, parents had rented out three villas, each with over 250 square meters of living space, to their adult children. They had offset the resulting annual losses of 172,000 to 216,000 euros against their other income. This led to considerable income tax savings, which the BFH did not recognize. The BFH requires that taxpayers in such cases must prove that the rental is made with the intention of generating long-term financial surpluses. If this proof cannot be provided and losses are incurred over a longer period of time, the letting is classified as irrelevant for tax purposes.
The BFH's decision underlines the previous case law that the letting of lavishly designed or furnished properties is not automatically a taxable activity. In order to be recognized as a taxable source of income, it must be proven that a positive result can be generated over a period of 30 years.
Source: AZ: IX R 17/21/bundesfinanzhof.de
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