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Comment by archi42 | Hacker News Reader

Wait, what?! I recently checked if I can deduce some of the expenses from buying a house, but as long as I buy it myself to live there the state [Germany] says "screw you". If I bought it to rent it out, I could deduce some of the expenses. Now I need to figure out if it makes sensoe to start a housing company to buy a house and rent it out to myself so that I can deduce some of the expenses... (IANAL, but I suppose that might be tax fraud - OTOH I wouldn't be too surprised if it is not).

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It can make sense to allow offsetting costs of housing (rent and interest) against income tax. That helps those who don't own large amounts of equity and have really high outgoings.

However it also reduces the incentive to reapay mortgage capital at all (is that bad?)

Currently if you have £500k in cash, you can either

1) Buy a house and pay no rent

2) Pay £1500 a month in rent

Why would you pay £1500 a month in rent (which at a marginal rate of 40% means having to earn £3,750 a month, or £45k a year, extra in income.

Effectively you get a 9% roi on that £500k by buying the house (ignoring house price inflation). Someone with £500k in cash and £50k a year is better off than someone with £0 in cash and £90k a year, despite the latter being nearly twice as valuable to the economy.

Now in a situation where £1500 a month is tax free, you'd have to earn £18k extra a year, and that roi on house ownership drops to 3.6%, and that's good. Housing should be somewhere to live, not an investment.

Of course on the flip side, the extra money available would likely push private rents and house prices up anyway. Perhaps the solution would be to ringfence the interest into some form of long term savings (either to use on buying a house, or to fund a pension).

Good points, thank you! I didn't mean to say that it's inherently bad - I am actually puzzled that here companies (who want to make money) can save at least some taxes on buying a house as an investment, while a private person has no such option. This doesn't seem like a fair market to me, as a company can ALWAYS out-compete a private buyer (assuming both having the same cash reserves).

The flip side might be true, but I think it's not as easy. I have a meeting now, so I can't go into detail (and not think about the details; ergo you might still be 100% right!). But if private buyers - those who would rent - can more easily compete with companies on buying, companies need to make renting more attractive. But maybe that effect is negligible.

it's the same situation where a company gets to pay tax on profits, but a human have to pay tax on revenue (their income).

I want to see this equalized - either allow humans to pay tax on profits only (i.e., they can deduct all expenses of their living), or tax a company's revenue like how a human is taxed.

That makes no sense. Current tax systems assumes that only people are taxed at the end - taxes such as VAT are in practice paid only by end consumer. Company taxes disincentivizes "taking profits" out of the company by not taxing expenses - wages, investments, costs of doing business. And they should properly exclude personal tax dodges, such as creating fake company to buy house and live in it.

I'm not sure if it is/would be a good or bad policy, but I can see benefits and issues on both sides

I think you have misunderstood how taxation works. If you rent out a house, the rent is income, which you are taxed on. The deduction means that you don't have to pay taxes on the gross amount, but only on the net income after you've paid the mortgage on the property. In almost all cases the rental income will be higher than the mortgage payment, so you will still pay some tax, more than the person who lives in a property they own with a mortgage.

>In almost all cases the rental income will be higher than the mortgage payment

60% of Australian landlords claimed a rental loss in FY17/18 and that's not an outlier. [0]

In jurisdictions where rental losses can be written off against ordinary income, landlords are happy to collect the tax benefit and just do the capital play.

[0] https://www.theguardian.com/business/grogonomics/2020/jul/21...

I am prepared to accept that 'almost all cases' does not include the insanity particular to the frothiest 60% of the Australian housing market ;)

One justification for this is that the imputed "income" you get from being an owner-occupier (ie the rent you would have otherwise paid but saved) is not taxable.

Although I don't know about Germany specifically, I suspect this is exactly the position you'd be in if you followed through with this plan - the company would have to pay tax on the rent. And you wouldn't be able to get around this by reducing the rent say to zero because it's a related party so the company would likely be taxed on an imputed market rent.

Would it be legal to partner with a friend and rent houses to each other ?

The problem is that you need to charge market rate, which the state then taxes as income. I would think it's unlikely to save you money. (If you don't charge market rate the tax office will either assume it's a gift and tax the renter on the rent saved or assume a market rate for income tax purposes)

IANAL, but I did some research for Germany: Assuming you need a bank loan to buy your house (and assuming the bank plays along), it seems you're able to deduce the interest on the loan. Same holds for anything you perform to increase the value of the house (e.g. new roof).

Now of course if the company pays e.g. 1000 Euro per month for the loan(s), it has to charge the tenants (=me & my SO) more than that plus taxes. The question is now if the effective tax rate can be pushed down to zero% by deducing the interest. As for the companies earnings, maybe that money could be "reinvested" into the house (better WiFi), so that MIGHT just be as good as putting some money aside. Or you actually buy another house for renting out. Obviously it's a good idea to talk about this to a tax advisor. For me this is only a Gedankenexperiment ;-)

I suppose then there is the whole thing about a company having to have a profit motive to be treated as a company. Otherwise it's 'Liebhaberei' and any income/cost does not have an impact on your taxes. https://www.vlh.de/wissen-service/steuer-abc/liebhaberei-was...

If you buy another house to rent out that might prevent this. But the other thing as well is who benefits from the houses? Because now your friend will own the house you like and vice versa. You probably cannot put in any provisions to ensure your friend will at some point get ownership of his house.

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