Acquire property from in-laws at market price.
March 22, 2011 | 100,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
Hello,
we (family, married, 2 children, both working, joint taxable income approx. 120,000 euros) would like to purchase the house of my in-laws (64572 Büttelborn, Hauptstraße 76, 2-family house, currently occupied by us and the in-laws) at a favorable but marketable price (estimated at 260,000 euros by an expert). The in-laws plan to live there for about 3 more years and then acquire a smaller condominium. We are likely to move out in the next 2 years and rent out the house completely (realistic achievable rent of 1,300 euros cold).
We could theoretically finance the house completely through equity (150,000 euros) and a private mortgage (direct monthly payment to the in-laws) without involving a bank. However, this obviously does not make sense from a tax perspective.
We are looking for a sensible financing concept to provide the necessary liquidity to the parents for a smaller property (150,000 euros immediately) and to be able to finance the property as cheaply as possible for ourselves.
Since I had to move to Kiel for work, we want to acquire another property there for our own residence. Currently, we have a dual household in Kiel and Büttelborn.
If you can develop a concrete concept for us, we would be interested in your service. If you need further information, please contact us.
Best regards
Dear advice seekers,
Thank you for your inquiry, which I would like to answer based on the information provided and in the context of your commitment within the scope of an initial consultation:
If you generate income from renting and leasing, you can deduct expenses related to the rental as operating expenses and may have negative income from renting and leasing that can be offset against your other positive income, resulting in income tax savings. These operating expenses also include interest on debts.
If the house contains two apartments, one of which is used by you for residential purposes and the other apartment is used by your in-laws under a rental agreement, then you generate income from renting and leasing and can deduct the proportional interest on debts as operating expenses as well as other operating expenses.
For the deduction of operating expenses, it is sufficient that your in-laws pay rent equivalent to only 75% of the local rent. For this, you should enter into a written rental agreement with your in-laws for an indefinite period and then conduct the rental relationship as you would with third parties. This includes ensuring that the rent is paid on time and regularly, which is best done through setting up a standing order.
By following this procedure, any resulting losses from renting and leasing will be fully recognized for tax purposes.
Whether and to what extent losses occur must be calculated before entering into a loan and rental agreement and the purchase contract. Only then can a decision on the course of action be made.
If the entire house is later rented out to third parties, the operating expenses including the interest on debts are fully deductible, as the self-use of an apartment has been eliminated.
To develop a concept, additional information will certainly be needed and further calculations will be necessary. You are welcome to contact me at my email address StillerTaxAdvisor@gmx.de so that the further steps can be discussed.
I hope that my information has been helpful to you.
Yours sincerely,
Ulrich Stiller
Tax Advisor/Graduate Business Administrator
