Taxes: When parents pay for the student apartment

If children study and want a dormitory at the place of study, parents can help financially plus the tax authorities can contribute for the expenses

If your child For anyone who is studying somewhere else and hence will need a dormitory, it is best to assume cautiously about how you proceed. Up until now, it was the rule that the offspring could present the rent for their think tank towards capstone project presentation the tax office as anticipated marketing expenses. Even so, as a consequence of various rulings by the Federal Constitutional Court, this really is no longer doable for children in their first degree.

This naturally raises the query of what’s meant by initially degree and what tax consequences are related with it. The Federal Constitutional Court argues that young children who study straight immediately after their Abitur (= first degree) are only allowed to claim all charges associated to their studies as unique expenses – and not as enterprise costs – restricted to 6000 euros per year. Considering the fact that most students earn small or absolutely nothing at all, the unique expenditures fall by the wayside at the end on the year, so it tends to make no sense to reimburse your child for the rent for the student accommodation. It truly is superior to take advantage of the low mortgage rates and acquire the compact apartment and rent it towards the kid. You will of course give your child the rental income beforehand. In order for the tax office to recognize the rental losses, the parents will have to make sure that they agree to no less than 66 percent with the local rent. In contrast to this, they are permitted to claim 100 percent on the income-related expenses, in particular the creating depreciation and debt interest, when they are rented to close relatives. Nevertheless, if the actual rent is less than 66 percent from the regional rent, the income-related expenses are decreased proportionally.

Parents buy an apartment at the spot of study and rent it to their daughter. The neighborhood rent at this location is 420 euros per month to get a comparable student apartment. The parents, however, charge the daughter ? 280. Right after deducting advertising costs, the bottom line is really a rental loss of 3000 euros. The tax workplace offsets this loss against the parents’ wages or pension to save taxes. The loss could be deducted in complete due to the fact the agreed rent is 66.66 % from the regional rent. When the parents have been only asking 150 euros rent monthly (= 35.71 percent on the neighborhood rent), the tax office would pay the incidental income-related charges also only enable the student dorm to deduct 35.71 %.

Now, not all parents have the inclination or the capital to finance their child’s house ownership. But taxes may also be saved using a rented apartment. To do this, you rent the dormitory within your own name and after that leave it for the child at no cost. Regardless of whether this performs depends mostly around the age of your offspring. Because in the event the parents nonetheless obtain youngster benefit for the youngster – and this can be a maximum of as much as the age of 25 – letting the student dorm absolutely free of charge doesn’t bring any tax positive aspects. In such a case, the property became component with the parents’ household for tax purposes. With all the result that the parents could only apply to get a tax credit of 20 percent of the perform performed in their tax return for expenses for craftsmen’s services or household-related solutions inside the study location household.