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Moving house for a better home office – Relocation costs could be tax deductible

During the COVID-19 pandemic, many professionals with small homes realised that as a result of working from home they suddenly had a need for considerably more space. Consequently, in their tax return, one married couple from Hamburg deducted the costs involved in moving to a larger home as work-related costs. However, the courts have not yet reached a consensus on whether or not this is allowed.

In the specific case, the married couple lived in a 65 sqm apartment and during the COVID-19 pandemic (and afterwards) worked from home. The cramped conditions and the lack of workrooms proved to be problematic and so, in July 2020, the married couple moved into a 110 sqm apartment with two workrooms and not far from the previous apartment. In their tax return, the married couple deducted the relocation costs as work-related costs. However, the local tax office refused to allow this and made reference to the previously applicable principle according to which house moves could only be recognised as being job-related if, as a result, the journey to work was significantly reduced – by at least an hour.

Nevertheless, the Hamburg tax court, in its ruling of 23.2.2023 (case reference: 5 K 190/22), allowed the married couple to claim this work-related cost deduction and made reference to the new world of remote working. The judges who rule on fiscal matters were of the view that the move had resulted in a substantial improvement in working conditions and had made things easier and, therefore, it was job-related. It had been necessary to set up two workrooms in order to be able to perform the respective jobs. That was the reason for the move – enhancing living comfort had however not been a criterion for the married couple.

An appeal against this ruling is pending before the Federal Fiscal Court (Bundesfinanzhof, BFH) so that, for the time being, it remains to be seen how the supreme court will clarify this issue. Anyone who has borne the relocation costs in a similar case should, to begin with, deduct these as work-related expenses in their tax return. 

Please note: If the local tax office refuses to allow this cost deduction then it would be possible to lodge an appeal with reference to the pending BFH case and to obtain a suspension of proceedings.

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