Federal Finance Court ruling of 4.2.2020, IX R 1/18

Deduction of interest on debts in the case of the construction and subsequent partial sale of an apartment building; allocation of interest on loans to income from renting and leasing.


  1. the pro rata allocation of loans to the production costs of a building that is to be partly let and partly sold is to be assessed in accordance with the criteria developed by case law on buildings that are partly let to third parties and partly owner-occupied.
  2. In such cases, there is an economic link between debt interest and the construction costs of a part of a building that will be used in the future to generate rental income only if the construction costs of the part of the building that is subsequently rented out and those of the part of the building that is subsequently sold are determined and reported separately and the taxpayer then actually pays the expenses that are specifically attributable to the construction of the part of the building intended for renting out with the funds received as a loan.


In this dispute, the construction costs of the entire building were paid from a single building account into which both the loan and own resources had been paid. The deduction of interest on the debt was therefore only granted proportionally to the income from VuV.

Recommendation for action

  • The following points must be observed in the case of mixed-use properties in order to obtain the full deduction of debt interest for one type of income (e.g. VuV)
  • The construction costs of the differently used parts of the building must be determined separately and reported accordingly
  • The loan funds must be specifically allocated to the building part of the specific type of income and may only be used to cover the construction costs of that part of the building
  • The financing and payment of the separate production costs must be carried out via separate accounts in order to avoid mixing of cash flows that would be detrimental to the tax deduction