Inheritance disputes often incur high costs, for example for lawyers or court proceedings. These can partially reduce inheritance tax, as shown by a recent ruling of the Federal Fiscal Court (BFH) on March 11. The BFH decided that legal fees for a partition auction are tax-deductible as estate settlement costs.
In the specific case, the deceased’s assets – including rental apartment buildings – had passed to several heirs. After two years, one heir applied for dissolution of the community of heirs. The tax office did not recognize the six-figure legal fees, arguing they were caused by the heir himself and not unavoidable. The BFH, however, considered the costs for the partition auction as directly related to the distribution of assets.
The law distinguishes between estate settlement costs, which are tax-deductible, and estate administration costs, which are not. Deductible costs include expenses that serve to settle or distribute the estate. The tax court classified the costs for dividing rental accounts as non-deductible administration costs – the plaintiff accepted this decision.
Currently, heirs can deduct a flat rate of 15,000 euros as estate liabilities without proof. Additional costs must be documented and precisely allocated. Anyone in a community of heirs should check whether a legal advisor can be instructed to end the community at the same time – tax-wise, this can be worthwhile.
Source: www.faz.net
