Subsequent settle debt interest from the tax: Tax Tips

The house is sold, but the credit still costs interest. Which can be tax-deductible now. But there are conditions for it.

One difficult situation: The owner must sell his leased property at a loss, but continue to pay interest on bank loans with which he financed the apartment or the house. Now he faces the question of how to apply the interest for tax purposes.

So far, the so-called post-debt interest was not tax deducted from the income from renting and leasing. But a decision of the Federal Fiscal Court (BFH) opens up new possibilities to those concerned. Following a letter from the Federal Ministry of Finance (BMF) of 28 March 2013, the tax authorities to deduct subsequent debt interest as a business expense on the income from rents and leases now permitted.

Previously, the highest German tax court had ruled in its judgment of 20 May 2012 (IX R 67/10) that debt interest on a loan that was originally included to finance the cost of a particular rental property, even after the sale of the property may remain deductible. With this ruling, the BFH is of its previous case law as well as departed from the view of the administration.

The subsequent debt interest deduction is only under certain conditions

In support of the judges refer, among others, income tax law to a change in 1999, with the speculative period (Section 23 Income Tax Act) was extended to ten years of two. After that, the tax office can capture capital gains on the sale of private property for a prolonged period. In turn, a longer-related expenses deduction should now be possible.

Those who want to benefit from the subsequent debt interest deduction must meet certain requirements. Thus, the loan may have served solely for the purchase of the property, and the property must have been up to their sale leased. Was it used as for personal occupation, the advertising costs can no longer claim. Especially on hard objects to rent sellers often take out a purchase price loss. Has the property been empty before the sale, it is important to demonstrate to the IRS that a rental intention was to continue?

This may be the seller, for example, through newspaper advertisements or by documents show, in which the order is held to a broker to look for a new tenant. In its ruling, the BFH left open whether favorable to the taxpayer law also applies to sales after the ten-year period. According to the tax authorities, an advertising allowance may be chosen only if the property is sold within the ten-year divestiture period and up for sale, the intention was to generate income from renting and leasing. So becoming apparent that a rented property loss is disposed of, it makes sense to the individual case to examine whether the sale within the ten-year period is beneficial. Whether favoring shall also apply to dispositions after this deadline will probably be clarified only by further court decisions with certainty.

Agree BFH and BMF are another prerequisites for the deduction of subsequent debt interest: The sales proceeds must first be used to repay the loan. he comes other purposes benefit, the tax benefit is not necessary.