Federal Fiscal Court against landlord: Homeowner reserves not deductible as business expenses

Federal Fiscal Court against landlords : Homeowner reserves not deductible as business expenses 25.02.2025, 14:55

Owners can claim expenses related to renting out their property as tax deductions. This also applies to reserves paid into the property for the maintenance of the shared property. However, simply paying into the reserve does not allow for a deduction as a business expense.

The changes to the Condominium Act in 2020 will not lead to tax improvements for the rental of condominiums: Contrary to what many had hoped, owners will not be able to claim their payments into the owners' association's maintenance reserve immediately, but will only be able to claim them as business expenses when the money is actually spent on maintaining the building. This is according to a ruling published on Tuesday by the Federal Finance Court (BFH) in Munich (ref.: IX R 19/24).

The plaintiff was a married couple from Franconia who own and rent out several condominiums. In the disputed year of 2021, they paid 1,326 euros in maintenance fees into the maintenance reserves of the respective condominium associations and declared this as business expenses in their tax return.

Tax deduction for actual use of funds

Referring to the previous BFH case law, the tax office and the Nuremberg tax court did not recognise this. Only when the money has actually been spent can it be assessed whether it was actually used for deductible purposes.

The plaintiffs referred to the 2020 Homeowners Modernization Act, which granted owners' associations full legal capacity. Since then, it has no longer been possible for owners to recoup funds paid into the maintenance reserve.

However, as the Federal Fiscal Court has now decided, this does not change the timing of the tax deduction. "A connection to the rental only arises when the community spends the accumulated funds on maintenance measures." Therefore, the apartment owners can only then claim the deduction of business expenses.

Although the money paid in now belongs "exclusively to the homeowners' association," the trigger for the payments is not the rental, but the legal obligation of every homeowner to contribute to the creation and maintenance of an appropriate reserve for the maintenance of the common property.