Deductibility of capital costs in case of sale between spouses
October 11, 2010 | 45,00 EUR | answered by Michael Herrmann
My wife is registered as the sole owner of the house (H1) that we jointly use in the land register and received homeownership allowance back in 2000, as we were separately assessed for tax purposes. Both spouses took out the mortgage at the time, which has since been paid off. Now she is planning to purchase a new house (H2) for later joint use. To raise the capital, she would sell her house (H1) to me. I would then replace my wife in the land register accordingly. I would finance the purchase price with approximately 60% from external sources. After that, I plan to rent out the house (H1) that we currently live in.
1. Question: Will I be able to deduct the interest for our current house (H1) when rented out for tax purposes?
2. Question: If yes, do I have to be the sole debtor of the mortgage for the house (H1) that I purchase?
3. Does the contract have to be notarized?
I am aware that such a construction is not usually recognized (there are also court rulings on this). The special feature here is that the house we currently occupy is solely registered in my wife's name. We are in a community of accrued gains.
Dear questioner,
first of all, thank you for your inquiry, which I would like to answer based on the information provided and within the context of your commitment in a preliminary consultation. The response is based on the description of the situation. Missing or incorrect information about the actual circumstances can affect the legal outcome.
1) Unfortunately, I cannot give you any hope regarding a legally secure design in this form. Since the financing ultimately always serves the new acquisition of the owner-occupied house, all constructions on this topic are exposed to the accusation of abusive design. Abusive design occurs when economically unreasonable transactions serve only the goal of reducing the tax burden.
It does not matter that your wife is the sole owner. From the point of view of the community of accrued gains, the sale is not economically justifiable.
In addition to the interest on debts, the purchase price would also be deducted through depreciation.
2) and 3) Since the sale among relatives must withstand the external comparison to a special degree, it would be advisable for you to be registered as the sole debtor. The same applies to the necessity of a notarial contract.
If you still wanted to proceed with this design, hoping that the tax office will not recognize the connections, the risk of notary and land registry costs remains as additional costs.
I hope that these explanations have provided you with a sufficient overview of the situation within the scope of your commitment, and I remain
Yours sincerely
Michael Herrmann
Graduate in Financial Management (FH)
Tax consultant
