Rental income (loss) from property outside germany

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Hi all,

 

first TT post here.

 

I've done a bunch of reading and searching and need some clarification since I couldn't ascertain a definitive answer from my searching.

 

I'm considering a new role in Germany. I'm currently located in Australia.

 

If I take this job I would keep my current home in Australia and rent it out. The rent would not cover my loan payments so I would make a loss on the 'investment'.

 

Am I able to claim this loss (rental income - loan payment) on my german income tax return? i.e. would this reduce the tax I would pay from my salaried income? This is how it would work in Australia.

 

Some previous posts talked about recent (2010) changes to German tax law regarding foreign property investment, so I'm curious as to what the current state is.

 

thanks,

 

pasey

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i thought i'd give this a bump. hopefully someone has been in a similar situation.

 

I need to make a call on whether to take this role in the next couple of days and this might be the clincher.

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Most likely losses will be treated like profits. This would mean according to the DTA losses from property in Australia will be taxed in Australia. They would not reduce your taxable income in germany, but they might reduce your tax rate (Progressionsvorbehalt) in germany. Also keep in mind that profits from renting might be calculated differently in germany, so it could be theoretically possible that you have losses according to german law, but profits according to australian law. Anyway it´s complicated - and you should seek the advice of a tax advisor specialized in international tax law.

 

If this problem is the deciding factor for your decision to move to a foreign country and you have to make this decision in a hurry without professional advice, you should probably not do it.

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thanks for the advice.

 

can anyone recommend a prefessional advisor who'd be able to give me the relevant advice over email (which I will pay for)?

 

I won't make the descision to go without knowing the answer.

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I won't make the descision to go without knowing the answer.

 

You will let tax dictate your wider life ambitions and goals and progress and aspirations? Are you sure? That's quite a limiting way to live in my opinions. In my experience, it's better to make the big picture choice. The little details like a bit of tax here and there tend to sort themselves out anyway. Beeter not to let them drive your wider life picture.

 

I can only speak for myself. Íf you look at what moving here "cost" me shortterm, it'd be well past 100k (just the time out learning german and not working etc). If I had thought like you, I'd not have done that obviously (and I speak as one who watches her pennies very closely ;) ). You have to see the bigger picture / longer term. Opportunities in life often come to those who can see beyond a few dollars - just going on cash is really limiting.

 

And - sure your tax position may not be as good. You'd expect that, moving to Germany, right? Place is well known for a high-quality infrastructure and suportive welfare state. That's one of the things a lot of us come here for. Tax is what pays for it. Can't have cake and eat it.

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I can only speak for myself.

 

with respect, you're not aware of my tax/personal finance situation. In your situation it isn't a consideration (or is a minor one), however in my situation a positive response on this issue may drive 20-30% difference in post-tax income, which for me will be the difference between being able to service my liabilities or not.

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I'm afraid no one - not even an accountant - will be able to give you a "definitive" answer, as the whole situation is currently in a state of flux.

 

As I understand the situation, Germany's previous stance on the issue was that losses from rental property abroad can only be offset against other income from rental property within Germany (but not against general income), but the European tax authorities have ruled that such losses must be recognized for property in other EU member states. I believe the German tax authorities are still denying this privilege to owners of property outside the EU, although this is being contested, so they certainly aren't going to give it to you without a fight.

 

Hope that helps.

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thanks for the reply, even if it isn't a definitive answer.

 

I've also asked my prospective employer to investigate too.

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thanks for the advice.

 

can anyone recommend a prefessional advisor who'd be able to give me the relevant advice over email (which I will pay for)?

 

I won't make the descision to go without knowing the answer.

 

if you check the business directory here on Toytown you'll find a number of tax advisors advertising who are specialized in dealing with and catering to ExPats. Knowledge about your case would come with the territory, I would assume. Out of those advertising I feel comfortable to recommend Thomas Zitzelsberger from ExPatTax to you because a number of my own clients use him and are very satisfied with his work. And he does a lot of his work by phone AND email, so there is another requirement of yours fulfilled...

 

Having said that: if our TT own experts like FReising and Jeffo say that this issue is currently "in the air" due to conflicing legal frameworks in Germany vs EU it might be that even Thomas can't give you a straight answer. But it would be an official answer.

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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Not sure if Australia has a tax treaty with Germany but with the US they do and as with most tax treaties, real property is taxed in the place in which it is located. However, even though Germany doesn't tax it directly, it does raise your tax rate. So what you do is you add the income earned from the rental abroad to your taxable income in Germany and then you pay the higher rate on the income you did earn in Germany. Make sense? So you wouldn't show a profit in Germany and should not have to pay tax. Your loss has to be shown in Australia taxes. But you always need to see a tax expert though - either a tax advisor (very expensive) or someone from a tax advice group (Lohnsteuerhilfverein) When I was in this situation though, I also wrote off my yearly trip to the States to "check up" on my investment. Flight, meals, accommodation etc was all tax deductible.

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That's not what he's asking, rhody - he's saying that his property will definitely generate a loss and asking whether he will be able to deduct this loss from his taxable income in Germany. And as I mentioned in my above post, I believe the answer is "no" - at least, not without a fight.

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If I take this job I would keep my current home in Australia and rent it out. The rent would not cover my loan payments so I would make a loss on the 'investment'.

 

Am I able to claim this loss (rental income - loan payment) on my german income tax return? i.e. would this reduce the tax I would pay from my salaried income? This is how it would work in Australia.

 

I'm not sure if the interest would be a tax deduction even in Australia. Problem is that your house is your primary residence (CGT Free) and its unlikely that you would get a second handout. Think about that, did you by the house as an investment or to live in. You can get a deduction for the other costs of renting the place out, but I doubt that will cover the interest costs.

 

In Germany you will need to pay tax on the rental income minus any costs (insurance, rates, australian tax). If you need to fly back to attend the property you could probably claim that cost, or a portion of it at least.

In Australia you may have to pay non-resident tax. Also, if you come to Germany for less than 2 years your income in Germany would also possible be taxed in Australia.

 

Don't worry, you don't pay tax twice, each country will credit you for tax already paid ... but if you need a tax break for this move to be worth while then you should really wonder if the offer you have is that great.

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I know nothing about 2010 changes but I have always understood that interest paid on a loan to finance property isn't tax deductible in Germany.

Before you calculate any loss you need to know what costs you can offset and for that the best person to speak to is a tax advisor.

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What you said is true for owner-occupied property, Rebecca. You're right: you cannot deduct the mortgage interest for your primary residence (unlike, say, the U.S.).

 

Rental property is an entirely different matter, however. If you buy a place in Germany (or elsewhere in the EU, for that matter) on credit and rent it out, all the interest is deductible as costs.

 

The OP's situation is neither here nor there, as he wants to know whether a loss on a rental property outside of the EU can be used to reduce one's tax burden in Germany.

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I have always understood that interest on a loan to finance property rented out abroad isn't tax deductible. Maybe I am mistaken, maybe not. This illustrates why the OP really needs expert advice.

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indeed it does. I am in the process of getting some advice. I will be sure to post a summary back here once received.

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Hi there!

 

I would be interested in knowing the answer to the OP's question.

 

Moreover, I am particularly interested in knowing if losses from a property in the EU can be used to reduce your tax bracket in Germany. I am considering losses from intereset payments, amortization of capital, realestate agent fees, and most importnatly notary fees and property registration tax.

 

Hope someone can sheed a light,

Regards

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Moreover, I am particularly interested in knowing if losses from a property in the EU can be used to reduce your tax bracket in Germany. I am considering losses from intereset payments, amortization of capital, realestate agent fees, and most importnatly notary fees and property registration tax.

 

First off, the answer differs depending on in which country your let property is.

 

You really have to look into the double taxation agreement between Germany and that country and look whether income from real estate is taxable in Germany, please see here for all existing agreements.

 

As far as I remember, for all EU/EEA countries it isn't and since that income isn't taxable in Germany then neither can you "use" a loss you make on that property in your German tax return.

 

Assuming that your property is in Portugal you won't be able to use that loss, please see post no. 96 in Filing a Tax Return for the chain of reasoning.

The relevant article in the double agreement between Germany and Portugal (in German and Portuguese) would be article 6, which gives the taxation rights to the country the property is located in.

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Hi,

 

I did try to search for an answer but i cannot say i found one, or at least i got lost in some terms.

Case1 : I intend to buy an apartment this year in my home-country(EU country) and rent it there. I do not have/want to pay the full amount so i will try to go for a mortgage. Is it possible to claim tax deduction on the interest paid for this apartment ? Except my salary here in Germany i have no other income in both countries.

    Ex. :

- i would pay cca. 400-500 EUR/month, out of which 200-250 would be interest. 12*200=2400 EUR/year.

- expected rent income would be in the range of 2400EUR/year.

- is it fair to assume that i could rely on the whole 2400EUR/year(half of interests/year, reimbursed as tax deductions + half of income/year, cause my brutto income is already higher than 60K) ?

 

Case2 : if i change my mind and try to do same thing in Germany ? Buy an apartment, eventually already rented, is it correct to assume that the interests i pay on mortgage in a year i could deduct them from my income. 

    Ex. :

- i would pay cca. 1500 EUR/month, out of which 500 would be interest. 12*500=6000 EUR/year.

- expected rent income would be in the range of 8000/year as income to my current income.

- is it fair to assume that i could rely on 7000EUR/year as overall income(6000/2, reimbursed as tax deductions + 8000/2, cause my brutto income is already higher than 60K) ?

 

I know the disclaimer: we are not steuer ...  bla bla bla ...

Just curious cause i did not fully understood this part.

 

Most likely i will end-up in case 1 :)

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Case 1:

If you buy a flat in Romania and have rental income from letting it, you have to do a Romanian tax return and do not mention that rental income at all in your German tax return, it's analogue to British rental income, since the double taxation agreement (DTA) between Germany and Romania has a progression clause in it in article 23 (2) d), just like the UK DTA has:

This holds true as long as Romania remains a member of the European Union.

 

 

Case 2:

If you rent a German flat, you will have to declare your rental profit in Anlage V of your tax return:

With only these expenses that you wrote, your rental profit would be:

8,000€ rent that you took in

- 6,000€ interest on mortgage

__________________

2,000€ to be declared in Anlage V

 

However, you also get to deduct 2% of the pure building price, so it will be less than 2,000€, see the link above.

 

These 2,000€ will be added to your other taxable income, and you will pay the average tax rate on your total taxable income 62,000€ (= 60,000€ taxable salary income + 2,000€ rental profit), which would be 29.89%, see the green line on this graph (if you're unmarried):

590209947e841_ekstDiagram201762.000singl

 

Any Lohnsteuer/Einkommensteuer you pre-paid throughout the year will lower this final tax burden.

 

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