“A good friend is the best in the world!” – that is the refrain of a song deeply anchored in the German cultural heritage. So it is not surprising that, if there is such a, it helps this best friend in a difficult situation without reservations – if necessary, with a more or less large injection of funds in the form of a private loan. After all, it helps a good friend and he will certainly repay the borrowed money as soon as possible.
No question that this would be the so-called optimal case, but the practice often shows a different reality. Because even this sentence is not a coincidence: “The friendship ends with money!”
And unfortunately this is more and more literal. Unfortunately, when repaying private loans to a friend, relative and acquaintance, it becomes increasingly clear that the payment behavior is not the best among these groups of people. As agreed payment dates are not respected, invented excuses, agreed rates without collusion simply reduced to the fact that the person does not hear anything more. In the end, the situation turns out to be that the lent money is gone for the time being and you as a private lender on the financial damage remains. Or?
Loss of credit to the tax office claim?
After all, one could assert the resulting financial loss as part of the withholding tax in the annual tax return as a loss. So perhaps the unanimous opinion of a large number of Germans. Unfortunately that is not the case and this is confirmed in the form of a court ruling from 2015 by the Finanzgericht Düsseldorf (7 K 3661/14 E). In addition to the financial and possibly even interpersonal damage, one has as a donor of a private loan no possibility to assert the loss to the tax office.
The Düsseldorf Finance Court justified its decision by stating that the total default of the private loan is not a sale transaction within the meaning of section 20 (2) of the Income Tax Act. The loss of a personal loan can therefore not be taken into account in income from capital assets.
Almost every income from an investment has been reported to the tax office since the introduction of the final withholding tax in 2009. This includes the profit and hence the loss on the sale of private loan receivables. To date, it was disputed whether the default of a claim is equivalent to a sale. The Finanzgericht Düsseldorf denied this. The total loss as a result of a bankruptcy is not mentioned in the law as a case of sale, inasmuch as in the opinion of the Dusseldorf Finance Court, the regulation of section 20 (2) no. 7 EStG does not apply. The full verdict can be found here.