Rental income calculation

47 posts in this topic

Is there any official source for this? Asking cos if this is the case, any investment from someone with "high" income in properties would make no sense..

 

thank you 

 

 

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Is there any official source for this?

 

Ummm.. the law - EStG §2 (1) -  http://www.gesetze-im-internet.de/estg/__2.html 

More information, read here, here, or here. Or just search the internet, there are lot of links. 

 

 

Asking cos if this is the case, any investment from someone with "high" income in properties would make no sense..

 

Huh? Do you mean that someone with high income should be not asked to pay additional tax on additional income he earns? That would not make sense to me. And I find no incentive for the German government to do that either

 

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Thanks for the links, I also checked with an accountant and that is that..

 

Oh and no,  I mean exactly what I wrote, which is the situation as it is without the salt and pepper you added ;)

 

Have a great rest of the day

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Hi all,

 

one question from me here.

 

I am single, living in Germany and I earn 50.000€ gross per year. I am thinking of buying a flat in the city where I live and rent it out. The rent I would be receiving would be 400€ p.m = 4800 p.y.

 

What would be the extra taxes this new rental income will bring?

 

I looked for something relevant in the site but I could not find it. In case there is, please let me know.

 

Many thanks for your responses.

There are two aspects to this. The first one is investment cash flow,  4800 per year as you mentioned. Secondly is the profit for tax calculations. It’s not uncommon (especially those bought during a boom) to lose money on a unit but still, on the tax return, be profitable and thus taxable. 

 

Here's how it works

 

Investment cash flow: Rent less mortgage payment and maintenance fees and taxes. If your rent is higher than those numbers you make a profit, if it’s less than you’re losing money. Quite simple

 

Taxation: Rent less expenses mortgage interest, maintenance fees (Nebenkosten)  property taxes and repairs.

 

On the first you're calculating the the complete cash flow, on the second only the costs (i.e. mortgage payment less principal)

 

Here’s a simplified example from one of my properties

Gross rent            6780

Interest                1733

NK                       2064

Property taxes     240

Profit                  2743 this amount is added to my income and taxed

 

You can also deduct depreciation, Panda Munich has an extremely detailed post on this but for illustration purposes you can assume 1% of the property value. 

 

Hope this helps

 

 

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tl;dr:

If you don't understand what you're doing, it's best to not do it.

 

Elaborating a bit further:

Buying property in a market where you know nothing about the laws (German real estate law is extremely tenant-friendly, for example) or taxation might be unwise. If you have a pile of money you want to invest, I'd suggest ETFs or mutual funds.

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@PandaMunich

 

In your example from one of your earlier threads, you provided the following example of calculating depreciation on rental property located in Germany:

 

--> "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€!

 

My question to you is.. Is 50 years the standard life to depreciate a German rental property?  I am looking at a client's German Anlage V for 2015 . Line 33 has the depreciation amount reported, but nowhere do the forms show the property basis from which it was calculated.  Can I presume that the property basis is 50X depreciation reported on line 33?  Or are there other parameters to determine the depreciation life of rental propertY? If yes, can you point me to an online resource so I can research?

 

Thanks in advance for a prompt response :) 

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Depreciation periods for real estate are set down in §7 Absatz 4 and Absatz 5 EStG: https://www.gesetze-im-internet.de/estg/__7.html

 

General depreciation rules for buildings, set down in Absatz 4, linear depreciation:

  • 50 years is the depreciation period for a house/flat used that was built in 1925 or later ( nach dem 31. Dezember 1924 fertiggestellt worden sind, jährlich 2 Prozent ), so this will cover most cases.
  • 40 years: for a house/flat that was built in 1924 or earlier ( vor dem 1. Januar 1925 fertiggestellt worden sind, jährlich 2,5 Prozent ) it's 40 years, these would be "Altbau"-buildings, usually with high ceilings and stucco, there are lot of those around in Berlin.
  • 33.333 years: for buildings that serve business purposes and that belong to business assets, and whose construction permit dates 31. March 1985 or later, it's a yearly depreciation of 3% ( bei Gebäuden, soweit sie zu einem Betriebsvermögen gehören und nicht Wohnzwecken dienen und für die der Bauantrag nach dem 31. März 1985 gestellt worden ist, jährlich 3 Prozent ), i.e. a depreciation period of 33.3333 years.

Absatz 5: degressive depreciation, still practiced for some "old cases", where the proprietor bought the building/house/flat new or built it himself up till 2005.

 

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21 minutes ago, Alvcpa said:

I am looking at a client's German Anlage V for 2015 . Line 33 has the depreciation amount reported, but nowhere do the forms show the property basis from which it was calculated.

 

In the case of linear depreciation (which is the bulk of cases) once a depreciation amount is accepted by the Finanzamt (which means submitting the purchase contract which includes the price, i.e property basis, and happens the first time you claim for it) they sign off on it unseen in future years.

 

Do you need the amount for a US tax return?

 

 

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22 minutes ago, PandaMunich said:

Do you need the amount for a US tax return?

 

 Yes, I need the basis for US return purposes. Under US tax law, foreign rental property is depreciated over 40 years straight line (ie linear).under the Alternative Depreciation System (ADS).   
  I will have to confirm if the rental construction oid before or after 1924. I presume after post 1924. 

22 minutes ago, PandaMunich said:

 

In the case of linear depreciation (which is the bulk of cases) once a depreciation amount is accepted by the Finanzamt (which means submitting the purchase contract which includes the price, i.e property basis, and happens the first time you claim for it) they sign off on it unseen in future years.

 

Do you need the amount for a US tax return?

 

 

@PandaMunich

 

In your example from one of your earlier threads, you provided the following example of calculating depreciation on rental property located in Germany:

 

--> "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€!

 

My question to you is.. Is 50 years the standard life to depreciate a German rental property?  I am looking at a client's German Anlage V for 2015 . Line 33 has the depreciation amount reported, but nowhere do the forms show the property basis from which it was calculated.  Can I presume that the property basis is 50X depreciation reported on line 33?  Or are there other parameters to determine the depreciation life of rental propertY? If yes, can you point me to an online resource so I can research?

 

Thanks in advance for a prompt response :) 

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Quote

Bodenanteil = value of ground your apartment stands on: 50/1000 x 400qm = 20sqm

Hi München Panda, A small question if you can kindly explain, from where the number 1000 and 400 came, I understand that 50 is the Wohnfläche for the apartment. Thanks 

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I think I got it under another topic.

 

Quote

- Miteigentumsanteil (MEA): your part of the building, and therefore also of the land the building stands on. You will find it in the Kaufvertrag done in front of the notary. In example: 52 parts of 1000

- Size of plot the buidling is built on, also from Kaufvertrag. In this example: 440sqm

Quote

 

 

Can you please or anyone advise where to put in the cost kitchen in the Anlage. Thanks 

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My Steuerberater has just told me something that I cannot corroborate and I am not 100% sure.

 

I let my old flat furnished and give my tenants flexibility to stay just for a couple of months and be able to give just one months notice. The rental contract is, however, indefinite.

 

My Steuerberater claims that rentals shorter than 6 months are "kurzfristige Vermietung" and for such rentals I need to charge 7% Mwst. I guess the flat is then treated as a hotel?

 

He further suggests that I write in the contract that the rental must run for at least 7 months. That'd be a bit of a bummer because the flat is mostly attractive to foreigners seconded by their company, and they want to have some flexibility with regard to the moving out as often projects get extended or shortened.

 

I also find it funny that the estate agent who manages my rental never mentioned anything.

 

Does anyone have experience with this? Maybe you, @MadAxeMurderer? Is this accurate?

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@Panda You are a treasure!

 

So far my tenants have always stayed longer than six months so no problem there. Of course, this is just one more complication to add to my increasingly bureaucratic life.

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14 minutes ago, Smaug said:

So far my tenants have always stayed longer than six months so no problem there.

 

19 minutes ago, Smaug said:

He further suggests that I write in the contract that the rental must run for at least 7 months.

 

I suggest you show him Abschnitt 12.16 Absatz 1 Satz 2 UStAE:

 

which points to Abschnitt 4.12.3. Absatz 2 Beispiel 1 UStAE:

 
Beispiel 1:
  1.  
    Eine Campingfläche wird auf unbestimmte Dauer vermietet. Der Vertrag kann monatlich gekündigt werden.
    Die Vermietung ist als langfristig anzusehen und somit steuerfrei. Endet die tatsächliche Gebrauchsüberlassung jedoch vor Ablauf von sechs Monaten, handelt es sich insgesamt um eine steuerpflichtige kurzfristige Vermietung.

--> as long as the contract is of an indefinite length, and your tenant stays at least 6 months, you do not owe VAT.

However, should the tenant leave before the 6 months are up, you would owe the Finananzamt 7% VAT on that rental period.

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Thanks Panda. I suppose I could write in the contract a clause that makes them aware that if they leave before six months are up, they'll get slapped with a 7% Mwst bill. That way I can still let short term and I avoid the danger of a tenant having a fit at the end of the lease or, worse, taking off to [insert country of origin] without paying the VAT owed. Although I suppose that in that case I could just deduct the VAT owed from the rental deposit.

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I own a property from my time living in Berlin but now live abroad.

 

I'm trying to roughly estimate what income tax I will need to pay from my property rental in Berlin.  Having read this thread it seems I can count the following as costs:

(1) depreciation which as an estimate is 1.5% of purchase price (?)

(2) the interest part of the mortgage payments

(3) land tax

(4) building maintenance costs

(5) other costs (insurance, accountant fees, renovation/repair fees etc)

 

So in my case, approximate figures per year:

(1) depreciation 4155 (based on purchase price of 277k)

(2) mortgate interest 4800 (estimated as 400 pcm on my total mortgage of 1016 pcm)

(3) land tax 500

(4) building maintenance costs 2292 (they are 191 pcm)

(5) other costs 1000

 

Which is 12747 per year in total costs (?)

 

Assuming I receive 18000 rent income per year (1500 * 12)

 

And I use 8652 per year as the tax free threshold.

 

So I put 18000 + 8652 - 12747 into the income tax calculator (total 13905)

http://www.parmentier.de/steuer/steuer.htm?incometax.htm

 

Which gives me 1016 income tax per year?  (Actually I am married, but I assume I cant get the married discount as we live outside germany).

 

Is this a good way to estimate?  

 

Thanks

 

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When calculating depreciation, is only the value of the building used? How do I find out what this is? In the Grundbuch? Is it calculated with the purchase price in mind, or is it just a valuation made by the government?

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