“Consideration of debt interest in mixed-use property.”

Interest on debt can generally be taken into account as income-related expenses to the extent that it is economically related to a type of income. The same applies if a building that was financed with a loan is not only used by the company itself, but is also partly used to generate income (e.g. by renting it out). Accordingly, it would only be possible to take account of the interest on the debt on a pro rata basis, i.e. to the extent that the loan is attributable to the part of the building that is rented out.

According to the case law of the Federal Fiscal Court, however, the debt interest can be claimed in full if the loan is specifically allocated to a particular part of the building that serves to generate income. The prerequisite for this is that the purchase price is divided between the parts of the building used for different purposes and that the acquisition costs attributable to this part of the building are actually also paid with the loan funds.

In a recent decision, the German Federal Fiscal Court clarified that a separate allocation of the loans to the acquisition costs of the leased part of the building, however, can be not is eligible if the loan funds have previously been deposited in a private current account and are used from there, together with the own funds located there, to settle the entire purchase price. Due to the mixing of own and third-party funds, it was, in the opinion of the court, no longer recognizable which funds had actually been used for the payment of the owner-occupied or the third-party-occupied part of the building. Since own funds were thus also included in the overall financing, the interest on the loan could only be added to the income-related expenses from renting and leasing in the ratio of the usable floor space of the owner-occupied part to that of the rented part.