Tax Tip: Attention, store credit!

Tax Tip: Attention, store credit!

Pays a homebuyer its real estate loans early return, he must pay a prepayment penalty. In the case of rental income, these costs were often made for tax purposes. That changes a new decision of the Federal.

W he wants to repay a mortgage loan early, the bank has to pay a prepayment penalty regularly. The bank that is creating a loss of interest claim as this has ideally refinanced maturities – that is, your example has a ten-year loan refinanced, among other things by issuing a ten-year bond – and it must be the interest on the bond continues to operate.

Reason for early repayment of the sale of the still financed by a loan property can be for example. However, when the real estate loans, the home financed a prepayment penalty may in principle, not a tax be claimed.

In the case of rental income (if the loan is therefore used to finance an apartment building) against (BFH) belonged to the jurisdiction of the Federal Fiscal a prepayment penalty so far to the tax-deductible financing costs when the remaining after the loan repayment balance of the purchase price was used to finance a new object. This favorable from the perspective of the taxpayer law was lifted now by a recent Federal Fiscal judgment of 11 February 2014 (Docket IX R 42/13).

Taxable sales transaction must be

In the judgment in the case, the applicant sold a purchased by it in 1999 and leased real estate property in of 2010. Since the applicant was obliged to load transfer of the land, arose in the wake of mortgage prepayment compensation of approximately 3,500 euros, which claims made by the applicant in its income tax return as a business expense on their rental income. The Bundesfinanzhof rejected this approach because he saw in the early repayment no longer related to the rental income, but in his opinion, these were incurred in connection with the sale of the property. The current economic context of the loan with the rental income will be replaced by a triggered by the sale instigation context. Meaning: In this case, the prepayment penalty is not tax deductible.

Since the sale of the property was carried out in the judgment fall outside the ten-year period, the prepayment penalty was not deductible in the income from personal sales transactions as so-called “sell”. This means in conclusion that the sale of a property, the prepayment penalty is tax deductible when a taxable sale transaction exists. If you were in any case not make a profit from the sale and is this close in time to the ten-year period, a sale before the deadline would be useful to make the prepayment penalty within the income from private sale transactions law.

But not affected by the change in case law is the case of prepayment penalties incurred for example by a more favorable interest rate debt consolidation loans at a rented property in a mere refinancing. This loan remains one of the financing costs and thus provides tax is deductible business expenses.

Is therefore planned in the foreseeable future, the sale of the property, the loan debt before the sale can be reduced prematurely by a low-interest bridge financing. The prepayment penalty still falls in the area of rental income and would, therefore, be tax-deductible as a business expense.