Owner and at the same time tenant
March 9, 2012 | 20,00 EUR | answered by Michael Herrmann
We are four (joint) owners of a three-family house (parents and son/daughter-in-law). The son and daughter-in-law live in one apartment in this house and pay rent to us for our 50% share of the apartment. The other two apartments are rented out to third parties. I understand how the income is divided, but I am unsure about how to divide the expenses. How is the owner-occupied portion for our children calculated? Can it be determined based on the living area? Since they are paying rent for half of their apartment, can they also deduct the expenses for that portion? Thank you in advance.
Dear inquirer,
First of all, thank you very much for your inquiry, which I would be happy to answer based on the information provided and considering your involvement in an initial consultation. The response is based on the description of the situation. Missing or incorrect information about the actual circumstances can affect the legal outcome.
In the joint property community, total rental income and costs are recorded. If those involved in the joint property community are also tenants at the same time, there is generally a tenancy agreement in place.
The Federal Fiscal Court (BFH) ruled in judgments dated May 18, 2004 - IX R 49/02 - (BStBl II p. 929) and - IX R 42/01 - (BFH/NV 2005, p. 168) that when a property is rented out to a co-owner by the joint property community, the tenancy agreement with the other co-owners must be recognized, and they will generate rental income in proportion to their share of joint ownership if the renting co-owner uses the common residential building beyond their share of ownership.
Since this is a paid rental of a property to a co-owner by the community, the tenancy agreement is to be recognized for tax purposes to the extent that the paid rental exceeds the share of joint ownership.
This means that the rent and the share of costs (50%) of the property of the son and daughter-in-law should only be attributed to the parents in the distribution of profits of the joint property community.
The personal use of the children is not taxable for them. At the same time, the share of costs is not deductible for them.
The resulting profit distribution is as follows:
Externally rented property: Income is distributed to all.
Owner-occupied property: Distribution of rent and half of the costs to the parents.
I hope that with this information, I have provided you with a sufficient overview of the situation within the scope of your involvement and this initial consultation.
Kind regards,
Michael Herrmann
Tax consultant
Diploma in Financial Administration (FH)
