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‘Ageing-in-place’ home modifications as an extraordinary financial burden?

When a home is remodelled by older adults the question that arises with respect to the tax deductibility of the costs is whether or not the modifications that have been carried out on account of an illness or disability are necessary and, therefore, extraordinary. The Nuremberg tax court recently ruled on a case where it deemed that “proactive action” was not a sufficient argument.

Expenses that are induced by illness or disability are generally tax deductible as extraordinary financial burdens if they are necessary, thus inescapable, and extraordinary when compared with the majority of people with similar levels of income and assets. 

The Nuremberg tax court, in its ruling of 6.9.2023 (case reference: 3 K 988/21), produced its decision in the case of a 70-year-old claimant who, in 2016, had been diagnosed with a serious lung disease that, over time, could get so much worse that he would become wheelchair-bound. As of September 2019, his level of disability was assessed to be 60% with the attribute ‘G’ (for Gehbehindert, or mobility impaired). In 2018, the costs incurred for the home modifications came to approximately €142,000. After deducting 30% for the superior standard as well as a grant from the KfW (a German government-owned development bank) the remaining amount came to €95,000; the married couple claimed a deduction for half this amount (to spread it over two years) in their 2018 income tax return. 

In addition, the couple submitted a doctor’s certificate that, from a medical perspective, recommended adapting the home to take account of the needs of old age and disability stemming from the multiple conditions diagnosed by internists and orthopaedists. While the medical service (of the insurance company) had been on site it had not however issued a certificate about the necessity of the measures that had been carried out because, in 2018, the disease had not yet progressed to the point where the remodelling would have been absolutely essential. In particular, the claimant did not yet have to rely on a wheelchair or rollator, although the high remodelling costs had however arisen on account of measures to provide wheelchair access, among other things.

After the local tax office rejected the claim for an extraordinary financial burden following an on-site assessment, the challenge before the Nuremberg tax court has now also been dismissed. In order for remodelling costs to be considered as an extraordinary financial burden they have to be induced on the basis of a disease or a disability. The expenses have to serve the purpose of restoring health or, at least, be appropriate for making a disease more bearable or to “satisfy a vital housing requirement”. This had not been the case because, in 2018, the married couple still had the freedom to choose if the modifications should be carried out then or later - this was in any case the view of the judges in their statement that: “it is not unusual for health to deteriorate as you age, particularly in the case of older people”. While it could be entirely reasonable to argue that the remodelling constituted “proactive action” in view of the worsening health situation, nevertheless, this was countered by the fact that a special expense deduction has to be of an inescapable nature.

Please note: The claimants had withdrawn their request to spread the costs over two assessment periods. The Federal Fiscal Court, in its ruling of 12.7.2017 (case reference: VI R 36/15) had already decided that a tax reassessment for equitable reasons in the case of high extraordinary costs that do not have an effect for tax purposes in one assessment period cannot be considered. 

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