Total profit forecast

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Total profit forecast or surplus forecast is a term from German tax law . Losses from a source of income are only recognized by the tax office if it can be proven that, viewed as a whole, a profit or surplus can be achieved from a company or source of income. This must be proven by a total profit forecast.

Forecast period

The estimated or past period of use is considered here. For this, the income plus a safety surcharge and the expenses minus a safety margin of ten percent are compared. If the difference is positive, an intention to generate income is assumed. If the result is negative, income-related expenses or business expenses incurred with the asset can not or only partially be taken into account.

Renting (legal situation until 2011)

  • The tax office regularly assumes no intention to earn income if the gross rent of an apartment is below 56% of the local gross rent.
  • In the range from 56% to 75%, the intention to earn income must be checked using the total surplus forecast.
  • If the gross rent is more than 75% of the rent customary in the area, it can be assumed that the intention is to generate income.
  • Special cases can be complex renovations or a short useful life, in which it is assumed that losses will be offset against private income for tax purposes.

Example:
A buys a condominium for 100,000 euros . He has it renovated for 30,000 euros and rents it out for 500 euros a month. The advertising costs are 100 euros per month. The usual gross rent for the apartment is 750 euros. After five years, he quits the tenant and then sells the apartment for 200,000 euros.

The purchase price or sales proceeds are irrelevant for the calculation. The apartment is only rented at 66% of the local rent. Even if A had asked for more than 75% of the local rent, he would possibly have no intention to make a profit. A must prove the intention to make a profit to the tax office on the basis of a surplus forecast for a period of 5 years.

The income is (5 years × 500 euros × 12 months) plus 10% = 33,000 euros

The expenses are (5 years × 100 euros × 12 months) + 30,000 euros minus 10% = 32,400 euros

The surplus forecast is positive. A does not have to deduct any income-related expenses to the tax office.

Note: In the case of unlimited tenancies, a useful life of 30 years can be assumed.

Letting (legal situation since 2012)

Due to the new version of Section 21 (2) EStG, a total surplus is assumed for long-term apartment rentals if the rent is 66% of the gross rent customary in the location. If the rent is less than 66%, the rental is divided into a paid and a free part. The advertising costs that are attributable to the free part are not deductible. A total surplus is also assumed for the remunerated part. This means that a surplus forecast is generally not required for long-term apartment rentals.