Reply to Rental income calculation

By PandaMunich,
Ok, here it is, because you asked nicely in the PM...   Disclaimer: I'm not a tax advisor. In Germany only tax advisors (Steuerberater) are allowed to give tax advice. So double check everything with a professional.   see here for the double tax treaty between Italy and Germany (in German and Italian)     That was the old regulation, valid until 2008.       This is correct starting with 2009. So for a rental profit of 12,000€ per year, you would have to pay following taxes: 2,702.00€ income tax 148.61€ solidarity tax to help pay for the costs of the German re-unification (Solidaritätszuschlag) _________ 2,850.61€   The good/bad news is that you have to tell the Italian tax department what rental profit you had in Germany and they will add it to your other Italian income and calculate a tax amount you have to pay for everything. The Italian tax department will then reduce this tax amount by the German tax (2,850,61€) you have already paid.   So depending on your personal tax rate in Italy this is good or bad news.       The tax department is not allowed to give out tax advice. The embassy isn't the right place to ask either. In Germany only tax advisors (Steuerberater) are allowed to give tax advice.     No. Banks only do direct source taxation on interest you earn with them or from profits when you sell stocks (for those it would be a flat tax of 25%)   For all other kinds of income you (or your tax advisor if you employ one) have to fill in tax forms at the end of every year (until May 31st for the preceding year) stating your income and do an income tax return by either submitting these forms them electronically or in paper form (or a combination of both) to the German tax department (Finanzamt). See here for a description of electronic submission via the Elster software.   I advise you to do it in paper form, because the tax department will want to see paper proof for everything, including the purchase contract done at the notary and the rental contract.   You can give the German tax department the permission to take the tax they calculate after processing your tax forms directly from your German bank account. This is called "Einzugsermächtigung". That way you will never be late with a tax payment.   Don't forget to make a copy of everything (including your filled in, signed tax forms) before you send it to the tax department by snail mail.   Since you will have rental income in Munich, that will probably be, depending on what the first letter of your surname:   A to E Finanzamt München I 80276 München   F to I: Finanzamt München II 80269 München   J to M: Finanzamt München III Deroystr. 18 80335 München   N to S (without Sch) Finanzamt München IV Deroystr. 4 80335 München   T to Z (and Sch): Finanzamt München V Deroystr. 4 / Aufgang II 80335 München   ************************************ What tax forms will you have to submit: - Mantelbogen for persons with limited income tax liability= form ESt 1 C This is the general form everybody has to fill in, with your name, address, bank account details - Anlage V Form for stating your rental income, expenses, depreciation and as a result, your rental profit/loss   ************************************ How to fill in the Mantelbogen form ESt 1 C   line 1: cross to the left of "Einkommensteuererklärung" line 3: your tax number: leave empty the first year, they will then assign you one which you'll have to fill in the future line 4: ID number: leave empty, only people living in Germany get one line 5: name of your tax department, e.g. if your surname is Schiaparelli --> starts with Sch --> fill in: Finanzamt München V   line 6: your surname and date of birth line 7: your first name line 8: your street name and number line 9: postal code, city line 10: your country of residency: Italien line 11: your nationaliy: Italienisch line 12: city of birth line 13: your profession, e.g. Ingenieur   line 14: your bank account number and bank sort code line 15: your IBAN: international bank account number, long alpha-numeric string, starts with DE for German bank accounts line 17: name of your bank, city it is in   line 22: cross to the left of "lt.Anlage(n) V" line 22: To the right of "Anzahl" write the number of apartments/houses you rent out. I suppose: 1   line 34: to the right of "lt. Anlage", fill in: V   line 66: cross to the left of "Nein"   line 79: cross to the left of "als steuerpflichtige Person."   line 80: write the date and sign   ************************************ How to fill in Anlage V (attach as many as you have rented out apartments/houses)   line 1: your surname line 2: your first name; cross to the left of "zur Einkommensteuererklärung" line 3: your tax number: leave empty the first year, they will then assign you one which you'll have to fill in the future   line 4: street name and number of the rented out apartment/house line 4: "Angeschaft am": date when you bought it line 5: Postleitzahl: postal code; Ort: city in which your rented out apartment/house is line 5: "Fertig gestellt am": date your rented out apartment/house was built   After you buy the apartment/house you will get a letter called "Einheitswertbescheid" from the Munich tax department, giving you a "Aktenzeichen" (a long string of numbers, e.g. 145/405/1234/006/034/9) line 6: write this long number "Aktenzeichen" from the "Einheitswertbescheid" line 7: total square metres of all your apartments, e.g. 50 if you have one, 350=150 if you 3 apartments of 50sqm each in that building line 8: depending on the fact on which floor your apartment is, choose a columns to fill in: Erdgeschoß = ground floor; 1. Obergeschoß = 1st floor; 2. Obergeschoß = 2nd floor; weitere Geschosse: anything above that and fill in: your rental income in that year without the costs for heat, water, etc. = cold rent = Kaltmiete Write the total amount for all floors in field 01   line 9: Anzahl: number of your your apartments on that floor line 9: Wohnfläche: total square metres of all your apartments on that floor   Each year the company administrating the apartment building (Hausverwaltung) will send you a "Hausgeldabrechnung" with an overview of what the heat, water, repairs cost in that year. They will also write in there which costs you can oblige your tenant to pay (heat, water, maintenace of lift, ...) and which you have to bear yourself, like that company's fee and the repair costs. line 12, field 4: Normally the tenant will pay an advance on these "Nebenkosten" (utility costs) to you every month together with his "cold rent". Add up all these utility cost payments your tenant made to you that year, subtract the reimbursements you made to him when he overpaid you on utilities and write the total into field 04   line 15: if you also rent out a parking space, put in the income for that year from that into field 07   line 20: add up the amounts from field 01, field 04 and field 07 line 21: forget about that for now, here you have to fill in the sum of (depreciation + interest costs + all real costs from the "Hausgeldabrechnung") which you only calculate later on, on the second page in line 50! line 22: rental profit or loss = subtract amount in line 21 from amount in line 20   line 33: here you will put in the amount of depreciation - if the apartment/house was built in 1924 or earlier: 2.5% of the "Pure building price" - if the apartment/house was built in 1925 or later: 2% of the "Pure building price" Now the calculation of the "Pure building price" is a bit complicated, but bear with me. The idea is that your apartment /house stands on some ground and that the price of the ground doesn't change the older the house gets, but that the apartment/house itself gets older and will be worth less with time. So how does the ta department how much of the price you paid was for the ground and how much for the building standing on it? They have a committee that decides every year how much a square metre of ground is worth in a certain region (= Bodenrichtwert). Depending on where your apartment/house stands in Munich, this can be 700€ per square metre of ground or even up to 5,000€ per square metre of ground. ------------------------- You can find out this Bodenrichtwert by phoning the Finanzamt and asking them for it for that certain street. They don't like giving it out, but just say you bought an apartment there and now need this value to do your tax declaration and then they will tell you. Just be sure to phone another person when you want to ask it for another street!   The Finanzamt doesn't like telling you the Bodenrichtwert because another state institution, that "committee", charges 30€ per information if you ask them, see here: -------------------------   They then subtract this "imaginary" value of the land the building stands on from your purchase price and the result is the "Pure building price".   Example: Bodenanteil = value of ground your apartment stands on: 50/1000 x 400qm = 20sqm Bodenrichtwert= "imaginary" value per sqm: 3,000 €/qm Wert Bodenanteil = value of ground part = 20sqm x 3,000 €/sqm = 60,000€ Prozentsatz Bodenanteil = percentage of ground costs = 60,000€ / 180,000€ = 33.33% (assuming you paid 180,000€ for the apartment)   Now we get on to the calculation of the "Pure building price": 180,000€ Purchase price of apartment 1,000€ cost of notary 6,264€ estate agent fee (3.48% of purchase price) 500€ fee to enter your name into the land register 6.300€ real estate transfer tax (3.5% of purchase price) ______________ 194.064€ real total purchase price --> part of that for ground: 33.33%: 64,688€ --> part of that only for building: 66.67% = "Pure building price": 129,376€   Depreciation over 50 years (I assume it was built after 1924): 0.02 x 129,376€ = 2,587.52€ is the yearly depreciation   line 33, column 1 and column 4: put in the amount of yearly depreciation, e.g. 2,587.52€ line 36, column 1 and column 4: put in the interest you pay on the mortgage (only the interest, not the part with which you actually pay off the mortgage!)   line 39, column 1 and column 4: repair cost out of "Hausgeldabrechnung" line 46, column 1 and column 4: land tax (= Grundsteuer, between 150€ and 300€ per year), real utility and other costs from "Hausgeldabrechnung" line 47, column 1 and column 4: fee of company adminitrating the building (= Hausverwaltung)   line 50: sum of all above costs in column 4 --> now copy that amount from line 50 into line 21 on the first page and calculate your rental profit or loss in line 22   Congratulations, you're done. Don't forget to make a copy of everything (including your filled in, signed tax forms) before you send it to them by snail mail.   ***************************************   There is a big pitfall in above depreciation.   If you buy a apartment it can pay off to rent it out because you only own a small share of the land under the building (20 sqm in the example).   However, if you buy a house with 400sqm of ground, then you will have as the total "imaginary" land value a huge amount. Regions with houses typically have a Bodenrichtwert of around 700€/sqm in Munich.   Example: Price of house: 400,000€ Land value according to Bodenrichtwert: 400sqm x 700€/sqm = 280,000€ --> "Pure building price" = 400,000€ - 280,000€ = 120,000€ They don' take into account what the "real" market value of that building alone would be, they just stubbornly subtract the "imaginary" land price from the price you paid and then you can only depreciate 120,000€ over 50 years, i.e. 2,400€ depreciation per year for an outlay of 400,000€!   ***************************************   Are you really aware of all the bureaucracy that is involved in renting out an apartment in Germany? A tenant has a lot of rights here and it's kind of difficult to repair a broken water pipe when you're actually in Italy. Please remember a tenant has a legal right to have things repaired immediately! If you don't jump when he says so, he will pay you less rent until you do the repair and it's absolutely legal.   It can also be difficult to get a tenant out of the apartment even if he stopped paying the rent and utilities. You have to drag him through the courts for 2 years until you get an eviction order and the procedure will cost you between 6,000€ and 10,000€ (lawyer, court costs, bailiff = Gerichtsvollzieher, deposit costs for tenant's furniture, ...).   These things are all much more complicated if you don't live in the same city as your tenant, let alone in a different country...   Please consider all these aspects carefully before deciding.
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