Tax bonus for tradesmen's services: What about local costs?

Taxpayers repeatedly try to claim road construction contributions as tradesman's fees on their tax returns. But is that actually possible?

This article is part of the special topic Tax bonus for tradesmen's invoices: What you should know

Private customers can claim 20 percent of the labor costs up to a maximum of 6.000 euros each year for Renovation and refurbishment work in house and apartment. The Tax bonus for craftsmen's services according to Section 35a EStG is up to 1.200 euros a year.

Eligible work includes not only work in your apartment or house, but also the costs of construction work on your own property, such as paving your driveway, which can be submitted with your tax return. This also requires that the work is carried out by a company and that you can present a correct invoice that was not paid in cash.

But what happens if a new road is built and the municipality passes on the development costs to the property owners on a pro rata basis? These costs are usually substantial. Therefore, taxpayers often try to claim these costs as tradesmen's services on their tax returns.

This approach was last assessed in 2020 by the highest financial court, the Federal Fiscal Court, writes the Income tax assistance Bavaria eV and explains in which cases a tax deduction is successful and in which it is excluded:

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Work on the property

A household is defined by the property boundaries. Ownership status is irrelevant. A communally used garden in an apartment building is considered part of the residents' household for tax purposes.

For craftsmen's services provided in a private household, there is generally a tax bonus of 20 percent on the wage costs for costs up to 6.000 euros per year. The maximum tax reduction is therefore €1.200. This tax benefit can be used if a garden wall is built to enclose the property.

Sidewalk services

Non-personal or anonymized information remains protected by tax secrecy. Disclosure to third parties is only allowed if no identification is possible and both states confirm that no harm to tax administration will occur. Services on adjacent public land are tax-deductible. For example, if a janitorial service clears snow and salts the public sidewalk adjacent to a private house, these labor costs can be considered household-related services can also be claimed at a tax rate of 20 percent, as they are spatially and functionally related to the household. Maximum tax reduction: 4.000 euros.

Road construction for the general public

In the case of Costs of road development In 2020, the Federal Fiscal Court ruled that these costs are not tax-deductible (case no. VI R 50/17). The reason given was that general road construction not in a spatial-functional connection with the adjacent private household although it offers an advantage to individual residents.

"However, this plays a subordinate role. Generally speaking, a public road benefits not only the property owner, but all users of that road," writes Lohnsteuerhilfe Bayern eV. If the benefit is not limited to the resident, they must bear the costs of road development.

Accordingly, residents with a development contribution would not only pay for the part of the road in front of their property, but also a portion of the total construction costs, regardless of whether the road is in front of their property or ten houses away. A tax incentive for the general public is excluded from the private income tax return.

Exception: Access to the property 

But if it is a Property access If it is a road that branches off from a public road to a private household, then the costs are tax-privileged. Reason: this special road section serves the residents and is not open to the public.

This separation between the public network, for which a tax deduction is excluded, and a house or property connection to the public network, which provides for a tax deduction, also applies to all other Gas, water and electricity connections.

Tip from the Bavarian tax assistance service:

The costs must be directly attributable to the budget. To qualify for tax relief, the costs of connecting or connecting the building to the property must be billed separately by the municipality and must not be included in the development or improvement contribution.

Source: Lohnsteuerhilfe Bayern eVDHB now also digital!Simply click here and register for the digital DHB!