Intent to Generate Income from Vacation Rentals: Local Standard Rental Period and Statistical Bed Occupancy Rate

In the case of vacation rentals that are maintained and offered for rent by the owner, it may be necessary to provide the tax authorities with evidence that the owner actually intends to generate income. In some cases, the tax authorities may assume that the vacation rental is merely a so-called hobby. If the vacation rental business is indeed classified as a hobby, the vacation rental is no longer relevant from a tax perspective. While this may sound positive at first, it is often a problem because, among other things, losses from the vacation rental income stream are no longer recognized. It is therefore often in the interest of vacation rental owners to prove their intent to generate income to the tax authorities. For vacation rentals that are exclusively rented out or held for rental purposes, there are two options in this regard.

The question: Is the vacation rental rented out in accordance with local market rates?

To prove the intent to generate income, the question is regularly asked whether the vacation rentals are rented out regularly and at local market rates. The principle is theoretically quite simple: The question must be answered as to whether the vacation rental in question is used by customers as frequently as is customary in the area. What does not seem particularly complicated at first is not so simple in practice. In order to make a comparison with the vacation rental in question, it must first be determined what is customary in the area. There are no universally applicable guidelines here. It can be assumed that more vacation rentals are typically booked in a beach town than in a village in the middle of Germany. The local standard occupancy rate must therefore be determined. There are two options in this context:

• The local standard rental period
• Statistical data on bed occupancy

The local standard rental period

Evaluating the local standard rental period is the classic method for answering this question. The principle is simple: it determines the number of days per year that vacation rentals are booked during a specific period. Whether a specific number of guests is reached is not particularly relevant in this context. It should be noted, however, that the comparison should only include data from vacation rentals that are comparable to the case in question. Hotels or larger vacation resorts must not be included in the comparison.

Bed occupancy

An alternative to rental duration is the statistical analysis of bed occupancy. In this context, bed occupancy provides an overview of the utilization of vacation rentals. Data on bed occupancy over a specific period is collected in a standardized manner by state statistical offices and, in some cases, by local municipalities. The advantage is that this data is generally easier to access than rental periods. In some cases, similar surveys are also conducted by business and tourism associations. However, it is unclear whether this data would be recognized by the tax authorities in the event of a dispute.

Comparison with local market data in the event of a dispute

If the tax authorities question your intention to generate income from your vacation rental, you can use the data listed above to prove the contrary. It is important to note here that the vacation rental in question should actually have an occupancy rate similar to the average. The extent to which a deviation is still within the normal range and the point at which it is deemed a hobby depends on the individual case.

Tax Consulting in Düsseldorf and Oberhausen

In the event of a dispute with the tax office, taxpayers should always seek professional assistance. This can be beneficial in the form of both tax consulting and legal assistance. At Trimborn . Partner, we can offer you this comprehensive support all under one roof. Contact us to schedule an appointment.