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A passion for real estate

from
Markus Schmuck
Lawyer
Specialist in criminal law

Give me a call: 0261 - 404 99 25
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Just as in the area of commercial or professional self-employment, the intention to generate income (profit-making intention) is also a prerequisite for offsetting losses against other income when renting and leasing real estate.

Under income tax law, only an economic activity or use of assets that is ultimately intended to lead to long-term profits or positive income (profit-making intention) is relevant. If this is not the case, the tax office speaks of a hobby, in which case the losses incurred both from the commercial or professional activity and from renting out a property cannot be offset against other income.

In practice, the tax office's assumption of a hobby also occurs in the case of rented real estate, although according to the settled case law of the Federal Fiscal Court, if real estate is rented on a long-term basis, the intention to make a profit can generally be assumed without further examination. However, this principle applies only to the rental of apartments, not to the rental of commercial properties and also not to the rental of undeveloped land. In the case of commercial property, the intention to make a profit must always be specifically established in accordance with the Federal Fiscal Court ruling of July 20, 2010 (BStBl. 2010 II p. 1038).

The issue of a lack of profit motive (hobby) tends to arise in connection with the following special cases:

• Short-term rental of real estate under a fixed-term lease;
• rental of luxury apartments;
• rental of vacation homes;
• properties that have been vacant for a long time;
• rental of undeveloped land;
• rental of commercial properties.

It should also be noted that the disclosure of losses in the tax return that are later deemed "incorrect" by the tax office may also be assessed as relevant under criminal or administrative law. Either in accordance with § 370 AO (tax evasion, or attempted) or as a tax offense under §§ 377 ff. AO.

It makes sense to plan ahead in terms of tax law and to have professional defense in case criminal or administrative fine proceedings are initiated.

The statements represent initial information that was current for the law applicable in Germany at the time of initial publication. The legal situation may have changed since then. Furthermore, the information provided cannot replace individual advice on a specific matter. Please contact us for this purpose.