How can one optimally structure a donation of real estate for tax purposes?
June 15, 2024 | 50,00 EUR | answered by Otto Dornbusch
Dear Tax Advisor,
My name is Fanni Gehrmann and I am considering gifting a property to my children. Currently, I own a multi-family house that I would like to transfer to my children in a tax-efficient manner.
The current situation is as follows: The property has been in my possession for many years and has a high market value. Since my children are already adults and are expected to inherit the property in the near future, I would like to make the gift during my lifetime to avoid potential inheritance taxes. However, I am unsure of the best way to structure a gift of property for tax purposes in order to avoid potential tax pitfalls.
My concern is that I may have to pay high taxes on the gift or that there may be issues with the tax authorities afterwards. Therefore, I would like to know from you what options there are to optimize the tax implications of gifting property. Are there specific tax exemptions or benefits that I can take advantage of? What tax aspects do I need to consider in order to efficiently carry out the gift?
I would greatly appreciate it if you could provide me with specific tips and recommendations on how to structure the transfer of the property to my children in a tax advantageous way. Thank you in advance for your assistance.
Sincerely,
Fanni Gehrmann
Dear Mrs. Gehrmann,
Thank you for your inquiry regarding the gifting of a property to your children. Such a transfer during your lifetime can indeed be advantageous for tax purposes, to avoid potential inheritance taxes and to pass the property on to your children at an early stage.
It is important to know that gifts of real estate are relevant for tax purposes and therefore some tax aspects need to be considered. In Germany, there are tax-free allowances for gifts, which can be used every 10 years. Currently, the tax-free allowance for children is 400,000 euros. This means that you can gift your children up to this amount without incurring any tax. For grandchildren, the allowance is 200,000 euros.
If the market value of your property exceeds the tax-free allowance, the amount exceeding it becomes taxable. In this case, your children would have to pay gift tax. This tax depends on the relationship between the donor and the recipient and the value of the gift. It is therefore important to accurately determine the market value of the property in order to assess the tax implications.
To optimize the gift for tax purposes, you can also make use of the tax-free allowances of spouses or registered partners, which currently amount to 500,000 euros. It may therefore be beneficial to carry out the gift jointly with your partner to maximize the tax-free allowance and save on taxes.
Furthermore, there are various options for structuring the gift in a tax-efficient manner. This includes, for example, the use of usufruct rights to reduce the tax burden. It is advisable to seek advice from an experienced tax advisor to find the best individual solution.
In summary, it is important to consider the tax-free allowances, accurately determine the market value of the property, and take tax-optimized measures if necessary to make the gift as tax-efficient as possible. I recommend you to consult with a specialized tax advisor to discuss your individual situation and find the best possible solution.
I hope this information has been helpful and I am available for any further questions.
Kind regards,
Otto Dornbusch
