If you're uninsured, flood damage may be tax deductible.
When it comes to insurance claims for property damage due to flooding, having a basic protection plan is crucial. Without it, the costs for repairs and replacements are often borne by the owner themselves.
Flooding is not uncommon in Germany, with almost half of all houses lacking the necessary flood damage insurance that would cover such damages. This leaves many homeowners with the burden of paying for repairs and replacing their belongings out of their own pockets, though there are some tax benefits they can take advantage of. The Bavarian Tax Assistance (LOHI) emphasizes this point.
How landlords can claim flood damage expenses for tax relief
In the case of flooding, landlords or property owners bear the costs of damage to their rented properties. They can claim these expenses as advertising costs if they were not covered by insurance. If the property is restored to its original condition, the costs can be deducted immediately. However, if the property is improved through the construction work, the costs must be depreciated over several years. In the event of a disaster, a special depreciation might be possible.
How tenants can claim flood damage expenses for tax relief
If there is damage to the building, tenants are out of luck. However, they can incur significant costs if their personal belongings are destroyed and they lack the appropriate insurance coverage. The costs of replacing or repairing essential household items can be claimed as extraordinary burdens in their tax return. The catch is that the costs must exceed the reasonable personal contribution, which all depends on their income, number of children, and family status.
Among the essential household items considered for tax relief are furniture, electrical appliances, and clothing. Luxurious items like jewelry or artwork are not considered extraordinary burdens by the tax office.
How homeowners can claim flood damage expenses for tax relief
For household items, homeowners share the same options as tenants. But, they may also be able to offset the costs of repairing or restoring their property itself. Following a flood, homeowners can claim the costs for repairs and renovations of essential parts of their buildings as extraordinary burdens on their tax return. LOHI notes that the replacement of a faulty heating system or basement windows is easily deductible. On the other hand, the costs for restoring terraces, gardens, or garages are not deductible.
If you've received insurance payments, donations, or tax-free support from your employer, you must subtract these amounts from your total expenses. The tax office will then subtract the reasonable personal contribution, which can be up to 7% of your gross income. To qualify for extraordinary burdens, the repair work must be completed within three years of the disaster.
If the maximum burden limit is not exceeded, homeowners can at least deduct the costs for clearing, disposal, inspections, repairs, and restoration as craft services or household services for tax purposes. At least half of the labor, travel, and machine costs can be recognized by the tax office up to a maximum of 1,200 euros. But, keep in mind that cash payments are not accepted.
With the intention of making the tax relief available earlier, LOHI offers a tip to those affected: They can apply for a wage tax assessment from their respective tax office. The estimated extraordinary burdens or advertising costs can then be noted under the wage tax deduction features. This means less wage tax will be deducted from your salary monthly, giving you more money for repairs and replacements. Keep in mind, this advance is not considered a gift but rather an early deduction from your tax assessment of the following year.
So, it's essential to protect your property with the right insurance, as the financial consequences of flooding can be significant, both in terms of damage and potential tax benefits.
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The advisor at the Bavarian Tax Assistance (LOHI) emphasizes that homeowners without flood damage insurance can still seek tax relief for repairs and replacements. Landlords can claim flood damage expenses as advertising costs if not covered by insurance and deduct them immediately if the property is restored. Tenants can claim replacement or repair costs of essential household items as extraordinary burdens in their tax return, provided the costs exceed their reasonable personal contribution. A tenant without appropriate insurance coverage may incur significant costs for damaged personal belongings.
