Construction of a granny flat, financing + tax benefits, how to proceed?

Hello everyone,

We are building a single-family house with a granny flat. So how can I fully take advantage of the tax benefits (excluding depreciation)? I have already read quite a bit about it and have also been to a tax advisor. I just had the feeling that he was unsure about some points as well, and somehow I am now a bit unsure too.

50% equity, 50% debt capital
Living area house 200m² (80%)
Living area granny flat 50m² (20%)

If we finance everything through one loan and not through separate invoices, can we only deduct 20% of the total loan interest proportionally to the living area?!

Taking out an extra loan for the granny flat only makes sense if there are explicitly invoices for the granny flat?! It is not possible to estimate the granny flat proportionally to the total area with XXX€ and take out an extra loan for it, right?

To achieve tax benefits, one should finance the granny flat with 100% debt capital if possible and use the existing equity for the house. If I understand correctly, I need a separate loan and also a separate construction account for this. For the granny flat, there should be separate/own invoices during construction. Let's assume there are separate invoices issued for the granny flat amounting to 70,000€.
In addition, there are trades that are difficult or impossible to separate. Heating, garage, shell construction, and so on... Let's assume that, proportionally according to the living area, another 50,000€ is attributable to the granny flat. How does it work with that now?

Can I take out an extra loan for the granny flat in the amount of 120,000€? Or is it only possible for 70,000€ and I have to finance the remaining 50,000€ through the house loan?? If yes, I can fully deduct the loan for the 70,000€. But what about the 50,000€?

Surely I am not the first one building with a granny flat, am I?! How did you do it and what have you experienced?

Thanks to you all!

I cannot tell you exactly what can be included. But you can deduct: 2% of the acquisition cost annually interest However, you have to count the rental income against that. I hardly think it will really be worth it.

Basically, you have already understood it correctly.

It makes sense to have 2 separate loans, one assigned to the private sector (a lot of equity investment and quick repayment) and one to the rented sector.

The actual separation of costs naturally only works to a limited extent, as you have already noticed yourself. Structural work, heating, etc. cannot be separated at all, and the separation of interior finishing would work, but often the private area is equipped to a higher standard than the rented area, so that separation is actually not worthwhile for the taxpayer, but rather an allocation based on square meters makes more sense.
In the end, you simply divide the land costs according to m² and the total house costs according to m², and thus have the acquisition and production costs for the rented area. In this respect, a separate construction account is, in my opinion, pointless.

For the garage, one could try to use a different allocation key, e.g. thirds, if the main apartment uses 2 garages and the granny flat 1 garage.

For the built-in kitchen for the granny flat, it probably makes sense to assign it directly.

Of course, you can only depreciate wear-and-tear items. The house including ancillary construction costs with 2%/year and kitchen/furniture according to the depreciation tables (I suppose about 10 years).
Land costs and ancillary acquisition costs for the land, on the other hand, cannot be claimed.
The loan amount for the rented area should of course not exceed the proportional acquisition and production costs.

As I have not prepared any income tax returns except my own for almost 10 years, I would like to point out that this is a layperson's opinion and does not constitute legal advice.

If the granny flat is rented out at a reduced rate to family members, it should be noted that with too cheap rent the deduction of expenses is limited. Please consult a tax advisor again on this matter.

Currently, we have similar considerations and will address this in the financing as well.

We also planned to take out a separate loan for the [Einliegerwohnung] so that it can be separated. However, we still need to clarify whether that can be done that easily.

Of course, if the costs can simply be calculated as a percentage, that would make things a lot easier. We have already had the suggestion that detailed invoices from the respective companies should be required in the scope of services.

Layman's opinion of a banker who has been doing his own tax returns including V+V / business etc. for 15 years and knows enough explanations from corporate clients. 1. Cost statement of the architect, divided into owner-occupation + rental use ==> then you already have the depreciation basis for the granny flat (equipment like kitchen, of course, to be assessed differently) 2. Separate financing in the amount of the costs of the rental unit + incidental costs ==> allocation of debt interest in the income tax return That’s all. In ongoing operations, you can, of course, claim the costs related to the granny flat for tax purposes. The bank naturally has to cooperate, but they actually don’t care what the purpose of use stated in the loan is.

What must not be forgotten is the 2 KfW subsidy you are entitled to.

For the granny flat, we took out 100k, which my mother-in-law will probably move into, and we will keep the rent low for the tax office.. within reasonable limits.