Landlord's Maintenance Costs: Potential Direct Deductibility?
Tenants or property owners responsible for maintaining common areas in a condominium community are required to establish funds for future repairs and upkeep. It's crucial for landlords to recognize this when advertising their rentals.
Expenses related to these maintenance funds can be declared on income tax returns. This includes expenditures for repairing or upgrading shared facilities such as exterior walls, roofs, and utility lines.
As Daniela Karbe-Geßler from the Taxpayers' Federation points out, these expenditures can be offset against income at the time of payment from the maintenance fund. If the costs are substantial or involve major investments, landlords can spread out the deductions over the asset's lifespan.
However, according to tax administration guidelines, simply depositing funds into the maintenance fund does not allow for deducting the expenses as advertising costs. Only when these funds are utilized for investments can they be claimed on tax returns.
Daniela Karbe-Geßler clarifies that a tax deduction for advertising expenses is currently only eligible when the apartment manager withdraws funds from the maintenance fund for repairs or acquisitions.
Regular monitoring and updating of the maintenance funds should be carried out by landlords and property owners. It's essential to include these records when submitting income tax returns.
A landlord recently brought a lawsuit to the Nuremberg Finance Court (Case No. 1 K 866/23), arguing that deposits into the maintenance fund should be immediately deductible as advertising expenses at the time of payment, irrespective of their future usage and tax classification. The court, however, declined to consider the deduction in the year of payment.
The landlord subsequently appealed the decision, which was granted due to its significant implications. The related case number at the Federal Fiscal Court is IX R 19/24.
For other landlords, this implies that they can request a delay in proceedings, citing the case number, until the Federal Fiscal Court renders its decision.
It's important to note that maintenance funds can't be utilized for renovating individual owners' apartments. Each owner is responsible for bearing these expenses, which can also be declared as advertising expenses.
The Association of Taxpayers might provide insight on the tax implications of utilizing maintenance fund expenditures for major investments. Landlords should be aware that only when funds from the maintenance fund are used for investments can they be claimed as deductions on tax returns, as stated by Daniela Karbe-Geßler from the Association of Taxpayers.
