Why does heirs not benefit from previous rental losses

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Rental apartment

Losses from a rented property are not inheritable.


(Photo: dpa)

Munich Not every inheritance results in a financial advantage for the heirs. This applies, among other things, if there are debts or additional costs for the descendants. A wrong assessment of the legal situation often shows the disadvantages only late.

A son had this experience with his inherited apartment building in Switzerland. His father had had negative income from renting the house for four years. Until his death, these losses reduced the subsequent profits from the property. When he died, the outstanding amount was € 202,000. The son ultimately wanted to offset this sum as heir and legal successor to his father against the profits he had made from renting the house. However, the responsible tax office rejected his application.

The son defended himself against the decision of the authority before the Finanzgericht Düsseldorf. The judges there shared his assessment and upheld the lawsuit. They justified this with the fact that the negative income that had previously arisen was bracketed with the later deduction. Accordingly, they could pass to the heirs. The Bundesfinanzhof subsequently saw it differently (Az: IR 23/17). In his opinion, the unused losses from renting the house were not passed on to the son as part of the succession.

In principle, an heir replaces the deceased as a universal successor. However, there are exceptions to aspects that are directly linked to the person of the testator. The positions in question are to be assessed using the income tax law. With regard to the loss deduction, the Federal Finance Court came to the conclusion that it could not be passed on to the heir. The reason for this is that the negative income only reduced the performance of the deceased father, but not that of the son.

The situation would be different if the heir and the testator both had an equal share in the generation of future income. This could lead to the necessary bracketing of tax features. Only then would the prerequisite be fulfilled that the son could take over the father’s position in full tax law.

Practical tip:

Taxpayers who have incurred a negative total amount of income can claim it in their income tax return. In a first step you can offset the loss with income from the same type of income. If negative income is still outstanding afterwards, this is balanced with income from other types of income. Exceptions where this so-called vertical loss compensation is not possible are regulated by law.

In the next step, a possible additional loss amount is offset against the positive income of the previous year. If a remainder remains open afterwards, it will be carried forward to the following year. Loss reimbursement up to an amount of one million euros is possible for individual investments. The following year, 60 percent of the remaining amount can be carried forward.

Is this tax tip interesting for you? You can find more articles at our Cooperation partner Haufe.de.

More: Read everything else about tax returns in our 41-page advisory dossier – with tips for employees, for families, students, property owners, investors and pensioners.

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