Tax return: which parts of the monthly service charge (Hausgeld) landlords can deduct

Anyone who rents out a condominium transfers an amount to the property management company every month. Come tax time, the temptation is great to take exactly this amount times twelve and enter it as income-related expenses. That is wrong. For tax purposes, the monthly service charge (Hausgeld) is not a single item but a bundled payment that has to be broken down.

What is immediately deductible

Deductible are the ongoing running costs, meaning the part of the service charge that is actually spent in the current year. This includes:

• the operating costs of the condominium owners' association (WEG): heating, water, waste collection, communal electricity, caretaker, cleaning
• the management fee
• the association's insurance policies
• ongoing maintenance of the common property

These items belong as income-related expenses in Anlage V, the schedule of the German tax return in which you declare your income from renting and leasing. The fact that you later recover part of them from your tenant through the service charge settlement does not change this: the recovered amounts then count as income, while the costs remain income-related expenses.

The most common mistake: the maintenance reserve

Part of your service charge does not go into running costs but into the maintenance reserve. This money has not been spent yet. It sits in the association's account, waiting for the new roof or the next facade.

That is exactly why the contribution to the reserve is not deductible in the year it is paid in. This share only becomes deductible in the year in which the association actually spends the money on a maintenance measure. In tax terms, nothing happens as long as the money is merely being saved, and everything happens once work begins.

This is the mistake landlords make most often, and it is understandable: after all, the payment has left your account. What matters, however, is not when you pay the association but when the association spends the money. Anyone who deducts the reserve while saving and then again when it is spent deducts it twice.

Why the annual statement determines what you can deduct

The basis for this breakdown is the WEG's annual service charge statement. It must show which share went to running costs, which share was paid into the reserve and what was withdrawn from the reserve. This is exactly where the wheat is separated from the chaff.

A good property management company reports these items cleanly separated. You then copy the figures and are done. A poor one delivers a carpet of numbers from which you or your tax advisor have to laboriously extract the shares, and every hour spent on that costs you either time or fees.

This is a very concrete quality criterion, and you can check it before appointing a manager. In the selection interview, ask for an anonymized sample statement and check whether the reserve movements are shown separately. Anyone who cannot or will not show such a statement is already telling you something. What the service charge actually contains is explained in our guide on the monthly service charge (Hausgeld). If you are considering renting out in general, you will find the steps in our guide on renting out an apartment.

This article provides a general overview and does not constitute tax advice. For your specific situation, please consult a tax advisor.