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The 1996 Tax Act imposed a time limit on tax recognition of expenses for a second household (see article no. 23, sec. 4.2.2). Such deductions were limited to a period of two years for each location (revised sec. 9 par. 1 sent. 3 no. 5 EStG), instead of the previous unlimited duration. Persons who had already claimed expenses for a second household for two complete years prior to 1996 were unable to claim further deductions in the future (new sec. 52 par. 11a EStG). This article reports on two recent related court decisions.

1. Federal Tax Court decision

The Federal Tax Court has upheld the new provision against constitutional challenges (DB 1998, 606 - 5 Dec. 1997). With regard to the lack of a transition provision for second households already in existence as of 1 January 1996, the court stated that a transition provision was not constitutionally mandated.

2. Cologne Tax Court decision

The Cologne Tax Court has held that a 99 sq. metre apartment is excessively large as the second household of a single person and limited the deduction to expenses for 60 sq. metres (1998, 2097 - 14 May 1998). An appeal is pending before the Federal Tax Court (docket no. VI R 128/97).

Even if the appeal is unsuccessful, the holding may be of limited significance in light of the 1996 change in the law. The case related to a second apartment for which the costs were allowed in full from 1986 to 1991. The taxpayer's argument that he was unable to find an adequate smaller apartment was regarded as valid in principle. However, in view of the long time period involved, the court stated that the taxpayer could doubtless have found a smaller apartment in the interim if he had so wished.

From 1996 on only the initial two years are relevant for tax purposes in the first place. In light of the generally tight German housing market, the argument that a smaller apartment was not available should prove adequate for a period of two years.

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