Single-family house with undeclared granny flat

f) We plan to rent the granny flat in the attic as a second residence to my parents.

The apartment is only to be rented to the parents for visits. As far as I know, there is no obligation to use additional supply and disposal services if the household waste is sufficient for two.

However, to my knowledge, there are minimum consumption quantities per registered person or a basic fee per registered person. I do not know if this also applies to a second residence.

In principle, it seems like a tax-saving model.

converted attic. The attic has its own kitchen and its own bathroom, because the builder originally planned and built it directly as an apartment for his mother. In the building application (1950s), the rooms in the attic are referred to as "chamber."

Show the floor plan of the attic with the height lines. Then one can see whether it is officially suitable as a granny flat.

Basically, it seems like a tax saving model.

It doesn’t just seem that way, it is. If the parents want to transfer the potential inheritance early anyway, it has the nice side effect that the transfer also comes with a tax relief. It should be noted that this is generally legal as long as 70% of the local customary rent is observed and the rent is actually paid (and does not flow back in a way that can be proven). The whole thing can also be optimized tax-wise in terms of interest deduction and depreciation, which in my opinion is what the original poster is trying to do. The risk is that if you push the limits too far, the tax office may completely deny the rental or the income may exceed the advertising costs, resulting in an additional tax burden instead of a saving model. Even if it might still work in the beginning, with rising local customary rent, decreasing interest burden, and constant depreciation, this could quickly turn around. Or if the rent is not regularly adjusted to the local customary rent and for example only amounts to 50% of the local customary rent, then only 50% of the costs will be recognized. (Above 66%? 100% of the costs are recognized)

Many thanks for the numerous stimuli and hints. You are helping us a lot with that.

Thanks for the amusing bedtime story!

You're welcome, dear 11ant. I can well imagine that the story sounds odd at first impression ;-)

If you later generate a granny flat, you probably have to apply for a change of use.

Thanks ypg, "change of use" was the term I was missing. I just spoke with the city about it. It generally looks very good. If the rooms in the attic are already planned and implemented as living spaces in the building application, then it is not even a change of use. But if they are not living rooms, then one can (given basic suitability) apply for the change of use.

[...] If up to two residential units are approved under planning law and according to the development plan, you can basically consider a change of use requiring approval to a two-family house. For this, you have to have the existing building checked for suitability by an architect.

Thank you very much for the extensive classification, wpic. That initially corresponds with the statements of the city. May I ask why two-family house and not single-family house + granny flat? Because that would already be a major structural difference. Separating the attic and thus creating a self-contained apartment within the single-family home (the main apartment) is quite simple here. Designing the stairwell so that two separate apartments would arise, on the other hand, would not be desired. The ground floor and the upper floor of the main apartment are connected via exactly this stairwell. The stairwell is also designed to be part of the main apartment, both in terms of use and impression. I understand that the use case "granny flat inside a main apartment" is simply impractical by today’s standards and that you certainly wouldn’t want your tenant roaming around the stairwell of your own apartment – however, we would only be renting to my parents and only as a secondary residence. And for that the concept of the granny flat is very fitting. Or does the construct "granny flat in single-family home" no longer exist?

[...] such "chambers" usually only mean a partial residential use of the attic in connection with the apartment in the floors below, while the remaining area of the attic is the classic attic. Thus, a complete conversion of the attic would also be a change of use requiring approval

That’s exactly how it is here too; I was imprecise. The floor area is about 80 sqm. To achieve the necessary ceiling heights, the chambers are built in the middle and together only amount to 23 sqm of living space. We do not want to realize a full conversion at first, because to turn the attic into a great & modern floor would require a large dormer. And that is unfortunately currently not approvable and the roof is unexpectedly not poor enough for it. That means: we would keep an eye on it and perhaps tackle it in a few years – if the city agrees to the exemption.

[...] Have you calculated what result would arise from 70% of the local customary rent minus interest expenses and minus depreciation on the granny flat (without land)? Is the whole effort worthwhile at all?

We have calculated the cash flow over the entire loan term and it is lucrative for us.

It should be noted that incidental purchase costs for acquiring the land are part of the depreciation basis and can therefore only be applied indirectly. [...] If a sale occurs within 10 years planned or unplanned, this could also be a case for a proportionate speculative gain.

We would like to live there for 25 years (if nothing intervenes). Therefore it would not be bad if the acquisition-related costs connected to the granny flat exceed 15% and are thus not directly deductible. Do you mean this aspect or something else? As 11ant correctly pointed out, it would be quite special if despite modernization/renovation a tax allocation can be achieved so that you stay under the 15% in the first three years. But it would then be the top level to be certified a residual useful life of the granny flat of maybe 20 or 25 years (or let’s say: for the actual loan term of the granny flat-related loan ;-)).

That’s not just an assumption, that’s a fact. If the parents want to transfer the potential inheritance early anyway, there is the nice side effect that the transfer also entails tax relief. [...]

Yes, thanks for the post! Some get a stash of money as a gift, we just get rent for the secondary residence and thus monetize space that we wouldn’t use for the next 5-10 years. We don’t want to stretch that to the last euro either (that’s why 70% instead of 66% just to be safe). Luckily the city is large enough to offer an official rent index calculator, so I would expect little stress with the tax office (hopefully ;-)).

Show us the floor plan of the attic with the height lines. Then we can see if it officially qualifies as a granny flat.

May I ask why a two-family house and not a single-family house + granny flat?

It is both the same. A granny flat exists only colloquially, but not in terms of building regulations.

I understand that the use case "granny flat in a main apartment" is simply impractical by today's standards and you certainly wouldn't want your tenant walking around in the staircase of your own apartment - however, we would only rent to my parents and only as a second residence. And for that, the concept of the granny flat is very suitable. Or does the construct "granny flat in a single-family house" no longer exist?

That has never existed. At least not as an official apartment. For a building-law compliant apartment, a separate living area with its own entrance is required. If the access to the "granny flat" runs through the living area of the second apartment, it is not a separate apartment. And thus the house remains a single-family house. Nowadays practically impossible to rent out.

That would not have been necessary, taking the showing of the attic literally – all floor plans would have been welcome (and preferably a section as well). What is the staircase doing on the stage: is it the access to the attic? The attic does not look like it belongs to a house over 200 sqm.

Designing the staircase so that two separate apartments are created would not have been desired. The ground floor and upper floor of the main apartment are connected via this very staircase. The staircase is also designed to be part of the main apartment, both in terms of use and impression.

From my point of view, the desired granny flat lacks separation, and compared to studies, the aspect of "trapped rooms" is a common reason for rejection.