German tax law developments regarding separation

The German Bundesrat has supported amendments to the Annual Tax Act 2026 intended to mitigate tax disadvantages for specific groups. These measures include protecting the tax-free status of separation allowances (Trennungsgeld) for military personnel by rejecting a proposal that would have shortened the timeframe for redefining a primary place of work. Additionally, the Bundesrat backed an initiative to prevent tax penalties for co-owners who lose residential property tax exemptions due to separation-related moves.

In a separate legal development, the Lower Saxony Finance Court ruled on the deductibility of alimony. The court determined that alimony payments made to a permanently separated spouse cannot be claimed as special expenses during the actual year of separation. The court reasoned that because spouses retain the option for joint assessment during that period, they are still legally treated as a community of earnings and consumption. This ruling is currently pending revision before the Federal Fiscal Court.