Are rent payments deductible if I have two households? Can I deduct my German language lesson fees? What are the allowances for capital gains tax? The Expatica tax accountant answers your questions.

Slava Yakymchuk wrote:
 
1) I am relocating to Germany from Ukraine. In Ukraine, I own an apartment, which I have no intention to sell. In Germany, I will have to rent an apartment. Will my rent payments be deductible in full or in part as I have to maintain two households?
 
2) Naturally, I would like to attend German lessons. Is the tuition fee deductible?
 
3) Is it possible to obtain (purchase) an English translation of the German Income Tax Law?

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Dear Slava Yakymchuk,
 
Thanks for your questions.
 
If you rent an apartment in Germany, you will become a German resident. According to the German income tax law (Einkommensteuergesetz) everyone who is a German resident will be treated as 'unrestrictedly taxable' (unbegrenzt steuerpflichtig), meaning that Germany will have the right to tax your worldwide income except those parts that are allocated to another country due to a double tax treaty.
 
From the income that will be taxed in Germany, all expenses that occur to receive this income are in general deductible from the taxable income. However, the deduction of some expenses is limited to a certain amount.
 
If you maintain a residency in Ukraine and establish another residency in Germany because you take up employment in Germany, the German household will be a double household according to German tax law.
 
Double household expenses, which could be rental costs, additional charges for electricity and heating, home trips, etc.,  are deductible from the taxable income. However, with regard to the rental costs the tax authorities will check if the costs are reasonable. Reasonable means i.e. that an apartment for one person should not exceed 60 square meters, otherwise, the tax authorities will only accept the pro rated costs.
 
Please keep in mind that for deduction of double household expenses a double household actually needs to exist. If you plan to rent out your apartment in Ukraine, your German apartment will be your one and only household, and no double household expenses will be deductible.
 
If you attend German lessons, this will be most likely caused by your taking up employment in Germany. Therefore, the tuition costs will also be deductible. A different case would be if your non-working spouse also attended the German lessons. Her costs would not be deductible, as they are not connected to taxable income.
 
Unfortunately, I haven't seen an English translation of the German income tax law yet. However, as the German tax law is very complicated, most German nationals think that it is still very confusing even though it is in their language! Therefore, once you have successfully attended German lessons, you will be able to have a look into the German income tax law. But don't blame your teacher if it's hard to understand.
 
 
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Mr M. Coupar writes:

1) Is any capital gain on the disposal of chattels taxed in Germany? I am thinking here specifically of a record collection and a stamp collection. All items have been owned for between one and 30 years. The former includes items worth up to perhaps EUR 100, and the latter includes items worth potentially EUR 1000-EUR 10000 each.

2) If there is such a tax, what are the annual allowances, and what are the tax rates?

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Dear Mr Coupar,
 
This is an interesting question.
 
To give the right answer, it has to be checked if you receive income from business (Einkuenfte aus Gewerbebetrieb) or income from capital gains (Einkuenfte aus privaten Veraeusserungsgeschaeften).
 
Income from business requires that you bought the records and stamps with the goal of selling them later and receiving a gain. Furthermore, this should be done on a regular basis and with a commercial intention. Normally, this can be assumed if you have, for example, a shop selling stamps or records. If so, every gain that you receive will be taxable.
 
If business income in the terms mentioned above can be negated, a gain from selling a chattel will be treated as income from capital gains if the period between the selling date and purchase date does not exceed one year. This needs to be checked for every item that is sold. As long as the period exceeds one year, the gain will be tax free according to German tax law. If it does not exceed one year, it will be taxable in Germany if the sum of capital gains and losses achieved in one tax year is not below EUR 512.00. Please note that this is an exemption limit, not a tax-exempt amount. If your gain is EUR 513.00, then the whole amount will be taxable.

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This article contains information of a general nature and should not be considered as legal advice.

Although the greatest care has been taken in drafting this article, it is possible that certain information may have become outdated or inaccurate since its publication. Martin Brune cannot be held liable for the consequences of actions or omissions based on the content of this article.

March 2005

Send a question to Martin Brune at germany@expatica.com

[Copyright Expatica 2005]

Subject: Life in Germany, tax advice, ask our accountant