15 percent rule for partially gratuitous transfer
April 17, 2011 | 30,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
Good day,
I would like clarification on the following matter:
We have transferred our two-family house (worth approximately 600,000 euros) with 2 roughly equal-sized apartments to our two daughters, each half. We now live in one apartment with a registered right of residence in the land register, while the other apartment was renovated after the transfer and is rented out after 34 years. The transfer was partially paid, meaning the daughters took on liabilities of approximately 200,000 euros, were supposed to pay 200,000 euros (which we have now also gifted), and the rest was gifted.
Questions:
Does the restriction of 15 percent on renovation costs in the first 3 years also apply to this partially paid transfer with the gifting of 2 thirds?
How will our right of residence be treated by the tax office? There are no payments made by the daughters for the right of residence.
Thank you!
Dear client,
Thank you for your inquiry, which I would like to answer based on the information provided and in the context of your commitment in a first consultation as follows:
The 15% limit only applies when there are acquisition or production costs. A gift is not an acquisition, but a gratuitous transfer.
Only in the amount of the assumption of debt by the daughters are there acquisition costs. For this part, the 15% limit applies. For the portion for which rental and lease income exist, at least 2/3 of the sum of the renovation costs can be deducted. The remaining third is then subject to the 15% limit.
Example:
Value of the property is 600,000, of which an estimated 150,000 is allocated to the land. The basis for the 15% limit is the building component, here 450,000, of which 1/3 = 150,000. 15% of 150,000 = 22,500. The 22,500 euros are then the maximum limit to be considered. Assuming the renovation costs are 60,000 euros - always based on the invoice amount without VAT for consideration - then 2/3, i.e. 40,000 deductible advertising costs. For the remaining 20,000, the 15% limit applies. Since the maximum limit of 22,500 euros is not exceeded, the entire 60,000 euros would be deductible.
The right of residence is of no significance for income tax purposes. Therefore, it does not need to be included as income for you.
I hope I was able to assist you.
Sincerely,
Ulrich Stiller
Tax consultant/Diplom Betriebswirt
