- Capital Expenditures that Constitute Acquisition Costs: Example of a Condominium
- Maintenance Payments: Cash Payments No Longer Accepted by the Tax Authorities
- Employees’ Business Travel: Advance Lease Payments Allocated Over the Lease Term
- Attention Parents: Childcare Costs will be More Tax-Deductible Starting in 2025
1. Capital Expenditures that Constitute Acquisition Costs: Example of a Condominium
According to Section 6 (1) No. 1a of the Income Tax Act (EStG), expenses are reclassified as production costs if, within three years of the acquisition of the building, repair and modernization measures are carried out whose net expenses exceed 15% of the acquisition costs of the building. The expenses are then not deductible immediately, but only through the depreciation of the building. In the case of a condominium, two special features must be taken into account, as pointed out by the Hessian Fiscal Court.
The acquisition costs and incidental acquisition costs of the purchased condominium are decisive, not the value of the entire building. In the case of partial ownership and condominium ownership, the individual unit is relevant, not the entire building.
The repair and modernization expenses incurred by the landlord within three years of acquiring the condominium, including their proportionate expenses for work on the parts of the building that are jointly owned, must be taken into account.
Example:
A man purchases a condominium effective November 1, 2023. The total acquisition cost amounts to EUR 300,000. The land share is 10% i.e. EUR 30,000. The condominium is rented out after the renovation.
At the beginning of 2024, he has the sanitary facilities (bathroom, guest toilet) replaced at a cost of EUR 29,750 and installs new doors (EUR 11,900). He also contributes to the roof renovation (EUR 14,280). He claims the total expenses (EUR 55,930) in 2024 as immediately deductible maintenance expenses.
Solution:
The net expenses excluding VAT (EUR 25,000 + EUR 10,000 + EUR 12,000 = EUR 47,000) exceed the 15% limit of EUR 40,500 (15% of EUR 270,000). The expenses therefore constitute acquisition-related expenses. They are not immediately deductible as income-related expenses in the year of payment but increase the assessment basis for the building depreciation of EUR 270,000 by EUR 55,930 to EUR 325,930.
This also applies to the cost sharing for the roof renovation, which, as expenses for the common property, must also be included in the calculation of the total renovation costs incurred.
In the opinion of the Hesse Fiscal Court, the expenses attributable to the components of the entire building that are in the common property must not be disregarded. This would also contradict the simplification purpose of § 6 (1) no. 1a EStG, because repair and modernization measures regularly relate to both the special property and the common property. A division of the expenses borne uniformly for this would often only be possible with great difficulty.
2. Maintenance Payments: Cash Payments No Longer Accepted by the Tax Authorities
Since January 2025, maintenance payments to dependents can only be claimed for tax purposes if they are paid by bank transfer to the dependent’s account. This is due to a new provision in the Annual Tax Act 2024.
Cash payments will therefore no longer be accepted by the tax office in future. This means that the previous practice of sending cash to dependent relatives visiting from abroad will no longer be possible.
Note 1: The aim of tightening of the law is to make maintenance payments easier to trace and to prevent tax abuse. The tax authorities can only make exceptions in cases of hardship if extreme circumstances (e.g., a war situation in the country of residence) make a bank transfer impossible.
Maintenance payments can be deducted as extraordinary expenses up to the amount of the basic tax allowance (plus basic health and nursing care insurance contributions). The basic allowance for 2025 is €12,096. The reasonable burden (own contribution), which must otherwise be deducted in the case of extraordinary expenses, does not exist for maintenance payments. If the person receiving maintenance has their own income or receives state subsidies (e.g., BAföG), these reduce the maximum maintenance amount if they exceed €624 per year.
Maintenance payments are also not deductible if the assets of the person in need of maintenance exceed €15,500.
Note 2: Due to the new legal regulations, maintenance payers should switch their cash flows to bank transfers as soon as possible; setting up a standing order may be a good option here. However, it should be noted that maintenance cannot be paid retroactively. The law requires that maintenance payments for a month of need always be made in advance.
3. Employees’ Business Travel: Advance Lease Payments Allocated Over the Lease Term
Employees do not necessarily have to claim business travel as income-related expenses at a rate of $0.30 per km if they are working away from home (e.g., field service), but may also apply an individually calculated mileage allowance if they use their own vehicle or a vehicle provided for their business use. To determine this mileage rate, they must first calculate the total costs of their motor vehicle for a period of twelve months. These include:
- Fuel costs
- Maintenance and repair costs
- Motor vehicle tax
- Motor vehicle liability and vehicle insurance
- Depreciation (if owned)
- Debt interest on a purchase loan
- Leasing (special) payments
Distributed over the annual mileage, this results in an individual mileage allowance, which can then be deducted until the circumstances change significantly (e.g., due to a change in the leasing burden).
According to previous rulings by the Federal Fiscal Court (BFH), special leasing payments could generally be included in full in the total vehicle costs in the year of payment. However, in a new ruling, the BFH abandoned this case law and decided that special lease payments must be distributed linearly over the total term of the lease agreement, regardless of when they are paid. Employees may therefore only include the special payment on a pro rata basis in their twelve-month calculation. The BFH justified this period-based allocation on the grounds that special lease payments are prepaid usage fees that significantly finance the use of the vehicle in subsequent years. Their purpose is to reduce the lease payments during the term of the contract, which is why they must be distributed over the entire lease term.
Note: The new allocation to the relevant period also applies to other advance payments that extend economically over the term of the lease agreement. The BFH points out that, for example, the costs for a new set of tires may also only be included in the calculation spread over the depreciation period.
4. Attention Parents: Childcare Costs will be More Tax-Deductible Starting in 2025
Whether it is daycare, after-school care or babysitters, the costs of childcare for your own children can be deducted as special expenses on your income tax return. Until now, only two-thirds of the costs, up to a maximum of €4,000 per year per child, were deductible. Since 2025, 80% of these costs, up to a maximum of €4,800 per year per child, can be deducted.
To be eligible for this deduction, the child must be under 14 years of age and belong to the taxpayer’s household. Deductible childcare costs include expenses for kindergarten, nursery, daycare, or after-school care. Costs for babysitters are also accepted.
In order to claim childcare costs for tax purposes, you must have a receipt for the service that has been paid for by non-cash means (e.g., by bank transfer or direct debit). Cash payments are not permitted and will not be accepted by the tax office.
In addition, the tax office only accepts expenses that were incurred for childcare purpose. If a babysitter also provides meals or tutoring, for example, these costs are not tax-deductible. Costs for excursions, sports, language, or music lessons are also not eligible for tax relief. If a caregiver performs several tasks, these should therefore be listed separately on the invoice so that at least the eligible portion of the costs can be deducted.
Anyone who pays relatives such as grandparents or siblings for childcare can also deduct these costs under the above conditions. However, a written, “arm’s length” work agreement should be drawn up and signed by both parties.
If close relatives take care of driving the children to childcare, a special expense deduction can even be claimed for the travel costs incurred, provided that a written childcare agreement is concluded for this service. This agreement should also be in line with the standard practice. It must specify that the childcare is provided free of charge, but that the travel costs incurred for picking up and dropping off the child will be reimbursed. If the parents are not married, both parents should be included in the agreement. In addition, the reimbursement of travel expenses may only be made by the parents to the grandparents in non-cash form (e.g., by bank transfer). The grandparents do not have to pay tax on the travel expenses reimbursed to them, as this is merely reimbursement of expenses. A list of the trips made should be drawn up for each month; the parents should provide this list to the tax office on request as proof.
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