Transfer of ownership of a condominium to son
November 19, 2009 | 25,00 EUR | answered by Matthias Wander
Dear Sir or Madam,
Together with my mother (75%), I own a small condominium in Munich. It is an old building apartment of about 45 square meters that is in need of total renovation. The estimated cost for this is 40,000 euros. I assume that the market value before renovation is 60,000 euros, of which my mother's share is 45,000 euros. My mother is now in a nursing home and the apartment is to be rented out. The 75% of the apartment should now be transferred to me, and a usufruct of the rental income should be granted to my mother. I will cover the renovation costs alone. How should the rental income and advertising costs be taxed? Can the apartment still be accessed in case of need for my mother (10 years)? Are there still depreciation allowances (AFA)? Are there any other design options available?
Dear inquirer,
I would like to answer your inquiry in the context of an initial consultation based on your description of the situation as follows:
1. Gift tax
The transfer of the 75% share in the apartment constitutes a gift tax event, which, however, will not trigger any gift tax due to the exemption of €400,000 (for gifts from parents to children).
The granting of the usufruct also falls under gift tax. Due to the low exemption limit of only €20,000 (gift from children to parents), gift tax could be incurred. This would need to be examined.
The person entitled to the usufruct could then choose whether they want to be taxed based on the capital value of the usufruct, or if the tax should be levied annually in advance based on the annual value. If they choose the latter, they would need to submit a corresponding application to the tax office.
2. Income tax
I understood the situation to be that your mother is to receive the usufruct of all income. If this is not the case, the following explanation will change.
According to § 21 of the Income Tax Act (EStG), your mother generates income from renting and leasing.
Advertising costs are deducted from the income.
Depreciation is also considered advertising costs.
Renovation costs constitute subsequent production costs, as they serve to put the apartment in a ready-to-use state (for rental), and therefore would only be considered through depreciation.
However, depreciation can only be claimed by the owner and not by the person entitled to the usufruct. Since you as the owner do not generate any income, the depreciation is not considered for either you or your mother.
I hope this answers your question.
Sincerely,
Wander
Tax advisor
