Are costs eligible for deduction for the calculation of the real estate income tax?

In 2014, a taxpayer sold a property (co-ownership interest in a property) from his personal assets and had the real estate income tax calculated accordingly. Since it was a so-called "old property", the calculation was made using the flat-rate method of § 30, paragraph 4, item 2, EStG, according to which the acquisition costs were set at 86 % of the proceeds from the sale. Due to low income in the tax year, a special tax assessment application was submitted to offset the tax. In addition, the taxpayer wanted, among other things, to deduct the self-assessed costs for the real estate income tax, which was calculated by a notary, from the assessment base for the real estate income tax. For the calculation of the real estate income tax, the special tax rate was not applied due to the standard taxation regime, but the flat tax rate.

The BFG (GZ RV/1100044/2020 of 17.2.2023) stated that in the then legal framework of the Income Tax Act, a general prohibition on deductions for expenses under § 20, paragraph 2 of the EStG applied, which were directly related to income subject to the special tax rate i.e. the ImmoESt. The prerequisite for the deduction prohibition at that time was therefore merely the possible applicability of the special tax rate, so that even when applying the standard taxation option, the expenses in the concrete case were not allowed to be deducted. In the current version under the StRefG 2015/2016, the deduction prohibition only applies if the special tax rate is actually applied. However, since the complainant also submitted an application for a tax credit, the BFG also had to consider whether the self-assessed costs of the ImmoESt (i.e., the costs incurred by the notary) constitute special expenses as tax advisory costs and are eligible for tax deduction.

Tax advisory costs are generally deductible as special expenses provided they do not constitute advertising costs and are paid to persons authorized by professional law. In this context, the BFG notes that the justification for tax advisory costs as business expenses or as special expenses must be established. The question of the deductibility of tax advisory costs as operating expenses or as special expenses is decisive in determining whether they belong to the sphere of income determination or income utilization. The deductibility of tax advisory costs is not, in principle, limited to certain tax types. Since the tax advisory costs in the specific case relate to income from property sales, they are attributable to income utilization and therefore constitute special expenses. Furthermore, the prerequisite for the deduction is that they are paid to persons authorized by professional law, including notaries and lawyers. Consequently, the notary’s actual self-assessment costs were deductible as special expenses. The remaining expenses claimed, which also fell under the prohibition on deduction under Section 20(2) of the EStG, were not to be classified as special expenses due to their non-tax advisory nature.

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