Those who rent too cheaply risk problems with advertising costs

Property owners who rent out their properties should not do so at a reduced rate – not even for family or friends – otherwise they risk problems with the tax office regarding deductible expenses when filing their next tax return.
Landlords can only deduct 100 percent of their expenses if they charge the tenant at least 66 percent of the local market rent . There is no nationwide regulation for tax offices regarding the determination of the local market rent. However, the ruling issued by the Frankfurt Regional Tax Office for the tax offices of the state of Hesse (OFD Frankfurt, ruling of January 22, 2015, file number S 2253 A – 85 – St227) should serve as a good example of the criteria other tax offices use when determining the local market rent.

1. The rent of the previous tenants:
If the property was previously rented to strangers who are not friends or relatives, their rent plus additional costs is considered to be customary for the location.

2. The Rent Index:
If no comparable previous tenant exists, the tax office uses the rent index as a guideline, which generally specifies the local market rent within a range. As the Federal Fiscal Court ruled (17.08.2015, case no. IX R 10/05), the tax office must accept the lowest value listed therein as the local market rent.

3. Rental Value Calculators
If there is no rent index, tax offices resort to so-called rental value calculators. While these are not yet offered across all federal states, they are already available in many places, such as Hesse, from the offices for land management and geoinformation.

4. Internet research
If no local standard rent can be derived from these 3 methods, the tax offices in Hesse can conduct online searches and base their calculations on information about the rents demanded from large real estate portals.

5. Old rent indices
If the online search is also unsuccessful, the current local rent can be calculated using the inflation rate and an older rent index.

6. Average national net rent per square meter according to the 2010 microcensus. According to the Frankfurt Regional Finance Office, this represents the last option and must definitely take into account the annual increase rate of 1.15 percent. Since the calculated value also needs to be adjusted to regional conditions, this method of calculation is very complicated.

7. Expert report from a building surveyor
: For the Hessian tax offices, an expert report determining the local market rent is the last resort when all other procedures fail.

Source: Facebook/remaxsuedwest