What are the tax consequences of renting out my property to relatives?
June 2, 2022 | 40,00 EUR | answered by Tatiana Seiler
Dear tax advisor,
my name is Karl Eiserfelder and I own a property that I would like to rent out to relatives. However, I am not sure what the tax consequences of this could be for me.
Regarding the current situation: I bought the property several years ago and used it myself. Since I now have to move for professional reasons, I do not want to sell the property but rather rent it out. My relatives have shown interest in renting and we would like to draw up a rental agreement.
As of now, I have no experience with renting out properties and I am not exactly sure how renting to relatives will affect my taxes. My main concern is that I do not unintentionally bypass tax traps or make incorrect statements that could lead to problems with the tax authorities.
Therefore, my question to you as an expert in real estate taxation is: What are the tax consequences of renting out my property to relatives? Are there any specific regulations or special considerations I should be aware of? What options do I have to take advantage of tax benefits or minimize potential risks?
I look forward to your expert advice and thank you in advance for your help.
Sincerely,
Karl Eiserfelder
Dear Mr. Eiserfelder,
Thank you for your inquiry regarding the tax consequences of renting out your property to relatives. As an expert in real estate taxation, I am happy to assist you.
It is important to note that renting out a property to relatives is treated the same way for tax purposes as renting to unrelated individuals. This means that all income from the rental (rental income minus expenses) must be reported on your income tax return. You will need to pay tax on the income, but you can also deduct related expenses to reduce your tax liability.
Expenses that can be deducted include depreciation of the property, loan interest, insurance premiums, renovation costs, management fees, property tax, and maintenance costs. By subtracting these costs from your rental income, you can lower your tax burden.
It is important that the rent you receive from your relatives is at market rates. If the rent is too low, the tax authorities may consider it a hidden gift. It is also advisable to have a formal rental agreement to avoid misunderstandings and legally protect the rental arrangement.
There are various tax advantages and risks to consider. For example, you can depreciate the property over a period of 50 years through linear depreciation, reducing your tax liability. It is also important to keep all relevant receipts and documents carefully in case of a tax audit.
In conclusion, renting out your property to relatives does not pose any special tax risks as long as you properly document all income and expenses and accurately complete your tax return.
I hope this information has been helpful to you and I am available to answer any further questions you may have.
Best regards,
Tatiana Seiler
Real Estate Tax Advisor
