Letting - Payments into the maintenance reserve are not immediately deductible for tax purposes
Members of an apartment owners' association normally have to pay into a maintenance reserve so that, if and when the need arises, these funds can be used to renovate jointly owned property. In a recent case, the Federal Fiscal Court (Bundesfinanzhof, BFH) had to state its view on whether the payment into the reserve is already deductible for tax purposes, or only when the funds are actually used.
In the case in question, the claimants were letting out apartments that they owned and regularly paying management and maintenance charges to the respective apartment owners' association. A part of these amounts flowed into the maintenance reserve. The local tax office refused the immediate deduction of these funds as allowable costs on the grounds that this would only be possible when they are actually spent on maintenance measures. The tax court dismissed the claim. And the claimants lodged an appeal.
The BFH, in its ruling of 14.1.2025 (case reference: IX R 19/24) first clarified that the deduction of allowable costs in accordance with Section 9(1) sentence 1 of the German Income Tax Act required a direct economic link between the letting activity and the taxpayer’s costs. The payments into the maintenance reserve, admittedly, no longer belong to the owners of the apartments but, instead, to the association; nevertheless, the payments are made on the basis of the general obligation to maintain the jointly owned property. It is only when the accumulated funds are actually used for maintenance measures that they may be taken into account as allowable costs.
The ruling confirmed the previous tax treatment and made it clear that even the reform of the German Residential Property Act of 2020, which conferred full legal capacity on the apartment owners' association, had brought about no change to the tax assessment.
