Tax deduction denied for rent property transferred against annuity
A tax court has ruled that annuity-like payments made to a father following the transfer of a rental property cannot be deducted as income-related expenses.
Hamburg, Germany – August 29, 2019 – The Bremen Fiscal Court (Finanzgericht Bremen) has denied a taxpayer’s claim to deduct annuity-like payments as income-related expenses in connection with the transfer of a rental property. The decision prevents the taxpayer from treating monthly payments to her father as business expenses against rental income.
The case involved a taxpayer who received a rental property from her father. In exchange, she committed to making a monthly annuity payment to him. The taxpayer attempted to deduct these payments in their entirety from her taxable rental income. Tax authorities had only allowed a partial deduction, corresponding to the taxable interest portion of the annuity.
The court classified the payments to the father as annuity payments (Leibrenten), not directly related to rental activities, thus disqualifying them as income-related expenses (Werbungskosten). The court noted that the property transfer was structured as an advance inheritance, not a commercial transaction where consideration would be expected to be balanced.
Furthermore, the ruling noted that since 2008, the deductibility of certain annuity-like payments related to asset transfers as special expenses (Sonderausgabenabzug) has been restricted. For rental properties, such deductions are no longer permitted, reinforcing the court’s rejection of the taxpayer’s claim.