Are there special tax regulations for renting out properties to relatives?
July 5, 2024 | 40,00 EUR | answered by Johann Lauer
Dear tax advisor,
My name is Jessica Schlosser and I have a question regarding the tax regulations for renting out properties to relatives. In my case, it is a multi-family house that I want to rent out. Some of the apartments are intended to be rented to my siblings and parents.
Currently, I am unsure if there are specific tax regulations that I need to consider when renting out my property to relatives. I am worried that there may be potential tax disadvantages if I rent out my apartments to family members.
Could you please provide me with more information on the tax regulations to consider when renting out properties to relatives? Are there any specifics that I need to take into account in order to take advantage of tax benefits or avoid tax disadvantages?
I appreciate your expert assistance and thank you in advance for your help.
Sincerely,
Jessica Schlosser
Dear Mrs. Schlosser,
Thank you for your question regarding the tax regulations for renting out properties to relatives. It is understandable that you are concerned about whether there are specific tax aspects to consider when renting out your multi-family house to your siblings and parents.
In general, the same tax regulations apply when renting out properties to relatives as when renting out to unrelated third parties. This means that you must declare rental income as earnings from renting and leasing in your tax return. The rental income will then be taxed as income, and you can deduct expenses such as maintenance costs, management fees, or financing costs from the rental income.
However, there are some special regulations to consider when renting out your property to relatives. Firstly, you should ensure that the rent is in line with the local market rent. If the rent is too low, the tax office may classify the rental as a hobby and deny the tax benefits.
Furthermore, you should ensure that the rental to relatives is based on a clear and understandable agreement. It is advisable to enter into a rental agreement that regulates the exact terms of the rental and is signed by all parties. This way, you can avoid potential tax disadvantages and prove your actions in case of a tax audit.
It is also important to carefully document all income and expenses related to the rental. Keep proper books and records of all relevant receipts. This way, you will have all necessary documents on hand to fulfill your tax obligations and respond to any inquiries from the tax office.
Overall, you can also take advantage of tax benefits when renting out your property to relatives, as long as you consider the points mentioned above and make everything transparent and understandable.
I hope this information was helpful to you, and I am happy to answer any further questions you may have.
Best regards,
Johann Lauer
