By judgment of 23 April 2015 – 3 K 1750/13, the 3rd Senate of the Finance Court answered in the negative the question of whether high extraordinary expenses may be spread across several years on equitable grounds where, in the calendar year in which they were paid, they can have only a very limited tax effect. The plaintiffs were parents who, in 2011, had extensively converted their home to make it disability-accessible in order to continue caring for and looking after their severely disabled daughter in their own premises. To this end, the plaintiffs had, among other things, installed a goods lift and a mobile lifter and set up a care room for their daughter with a special bed and a special bathtub. The costs incurred in 2011 amounted to just under 166,000 euros, of which the long-term care insurance fund covered only just over 2,500 euros. The plaintiffs sought to deduct the remaining amount – spread evenly over the years 2011 through 2013 – as an extraordinary expense from their taxable income. The tax office, by contrast, took the position that the total amount could be taken into account for tax purposes only in the 2011 calendar year and set the income tax at 0 euros for 2011 only. The 3rd Senate has now confirmed this view of the tax authorities. The point in time of the tax deduction is determined by the so-called outflow principle and the principle of period-by-period taxation and is therefore only permissible in the assessment period in which the amount was actually paid. While there is a particular hardship in the fact that the conversion costs in 2011 exceeded the plaintiffs' total income, with the result that the portion of the expenses exceeding their income could no longer have any tax effect in that year, a distribution to subsequent calendar years is nevertheless not possible. After all, the extraordinary expenses had brought the plaintiffs a tax saving of 22,000 euros in 2011. The aim of the statutory provision is not to grant the taxpayer the greatest possible tax relief beyond that. The plaintiffs have lodged an appeal against the decision with the BFH under case no. VI R 36/15.
Frequently asked questions
Frequently asked questions
Can high extraordinary expenses be spread over several years on equitable grounds?
No. In its ruling of 23 April 2015 (3 K 1750/13), the Tax Court of Baden-Württemberg held that high extraordinary expenses cannot be allocated across multiple assessment periods, even if they do not produce a full tax effect in the year of payment. The cash outflow principle and the principle of annual assessment are decisive. An appeal against this decision is pending before the BFH under Az. VI R 36/15.
Are the costs of converting your own home to be accessible for people with disabilities deductible as an extraordinary expense?
Yes, expenses for the disability-accessible conversion of a home can be claimed as an extraordinary expense (außergewöhnliche Belastung) under § 33 EStG, insofar as they are not reimbursed by third parties (e.g., the long-term care insurance fund). However, the deduction is generally only available in the year the expenses are actually paid. If the costs do not have their full tax effect in that year, they cannot be carried forward to subsequent years.
What does the cash-flow principle mean for extraordinary expenses?
The cash-flow principle under § 11 Abs. 2 EStG states that expenses are recognized for tax purposes in the calendar year in which they were actually paid. For extraordinary expenses, this means that even very large one-off payments cannot be spread over several years, even if they exceed the taxpayer's total income.
What happens if extraordinary expenses exceed the total amount of income?
If extraordinary expenses (außergewöhnliche Belastungen) exceed the total amount of income, the excess portion is lost for tax purposes. According to current case law, a carry-forward or carry-back to other assessment periods is not permitted. The statutory provision is not intended to maximize tax relief, but only to ensure appropriate recognition of the special burden in the year it was incurred.
What alternatives exist to a single high financial burden when carrying out disability-friendly renovations?
Taxpayers should examine whether the work can be spread over several years so that invoicing and payment fall into different assessment periods. This allows the deduction as an extraordinary burden (außergewöhnliche Belastung) to be distributed across multiple years, applying the reasonable personal contribution threshold several times. Forward-looking planning with a Steuerberater (German Certified Tax Advisor) is therefore advisable for larger construction measures.