With its judgement of 7 December 2023 – V R 14/21 the German Federal Fiscal Court (BFH) ruled that the input VAT arising from installation costs for a heating system for residential rentals is not deductible. The BFH did not comment on the question as to whether the energy supply provided by the landlord should be classified as a mere ancillary supply to the rental or as a separate supply. This question was not relevant in this case because the input VAT deduction for the installation costs of a heating system for residential rentals was ruled out. The German rental laws do not allow for these costs to be allocated to the operating costs for which the VAT exemption may be waived.