Got a spare room? Tax considerations when subletting
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Whether it's an extra bedroom or a flat, turning it into a rental can bring in some extra cash. But, beware of taxman's keen eyes if you don't play it right! The German Federation of Tax Advisors (BVL) advises on the rules to avoid raising suspicions of tax evasion.
Rental income below €520 p.a. – relax!
Those earning less than €520 annually from renting out a room may breathe easy as this income is not taxable. Still, keeping records of such earnings could be vital if questioned by the authorities. However, earnings surpassing €520 per year must be reported in the tax return.
Permanent subletting, on the other hand, should always be disclosed in the tax return if the income, minus expenses, exceeds the limit of €410. This limit is reached when the rental income is greater than the expenses incurred.
Intent to generate income – a tricky term
These earnings are taxed when there's an "intention to generate income." This usually applies to permanent subletting. Essentially, landlords earn additional money in the long run, i.e., their rental income exceeds their expenses.
For instance, when part or whole of an apartment is sublet, if the rate charged to guests is higher than the rent and expenses paid, a surplus is generated.
Real-life scenario makes it clearer
Calculating one's expenses is complicated when only a part of an apartment is sublet, and the landlord still resides there. The total expenses for the apartment are then proportionally allocated. For example, if the rented room accounts for 20% of the living space, only 20% of the total apartment costs are deemed eligible for tax deduction.
If tenants and guests share a bathroom, its costs can also be dedicated. But, the bathroom's share of the total living space must be further divided by the number of users. For example, if the bathroom occupies 20% of the area, with 5 users (4 tenants and 1 guest), an additional 4% is taken into account, resulting in a total of 24% of the total apartment costs for the tax return. If the rental income surpasses this percentage, a taxable surplus emerges.
Stay out of the tax evasion limelight
The BVL warns that tax evasion suspicions might surface if someone sublets their living space on a tax-relevant scale and fails to report it in their tax return. In fact, the tax office actively targets platforms like Airbnb to locate evaders.
Platform operators are required to report users with at least 30 rental transactions per year or €2,000 in income through the platform.
- Renting out Properties
- Tax Implications
- Income Tax
- Expenses
- Value-Added Tax (VAT)
- Registration
- Documentation
- Double Taxation
- Local Regulations
- To ensure compliance with community policy and adhere to financial regulations, it's crucial to report income from vocational training or property rentals that generate over €520 per year in personal-finance, as failure to do so might lead to suspicions of tax evasion.
- When subletting a property, it's essential to keep accurate records of the rental income, expenses, and the intention to generate income, as these factors can have significant implications for tax purposes, particularly when it comes to value-added tax (VAT) and registration requirements.
