Distribution of income in a land community
December 19, 2013 | 25,00 EUR | answered by Anton Pernitschka
My mother and I bought a house a few years ago, in which my mother owns 2/3 and I own 1/3. The house consists of 3 floors with approximately equal living spaces. One floor is inhabited by my mother, one floor by myself, and one floor is rented out by my mother.
The tax office now says that the income from the rental should be distributed 2/3 to my mother and 1/3 to me. Since I do not receive the income, but my mother does, it is incomprehensible to me why I should have a tax disadvantage by accepting this distribution. Logically, the income should be attributed 100% to my mother.
After some research, I have found the following:
- In principle, a different distribution of income than the co-ownership shares is possible if an appropriate agreement has been made between the parties, which also makes economic sense and stands up to a third-party comparison.
- Furthermore, in this case, the property community should not act as the landlord, but my mother. In other words, only my mother should be named in the rental agreement.
- The rental income should not flow into a joint account, but into my mother's account.
If these points are met (which is the case for us), a different distribution than the co-ownership shares is possible.
Am I correct in my analysis? Do I need to consider any other points?
Furthermore, do we need to fill out the "Separate and Uniform Determination" form in this case?
Thank you very much!
Dear inquirer,
In the context of an initial consultation and your payment of fees, in compliance with the regulations of this forum, I would like to answer your question.
If the co-owners distribute income or expenses differently from their respective shares of ownership without providing for financial compensation, the tax allocation of income remains unchanged in accordance with the ownership shares. In this case, the tax authorities assume that the co-owners have made corresponding gifts for personal reasons, which are not relevant for income tax purposes.
According to EStR 21.6 sentence 2, no gift is deemed to have taken place if the distribution is based on an agreement among co-owners with economically reasonable grounds that are property-related. One such ground could be if one co-owner has a higher workload in managing the property.
On the other hand, according to the Federal Fiscal Court's rulings of October 7, 1986, BStBl II 1987, 322 and March 31, 1992, BStBl II 1992, 890, an agreement for a different distribution is not recognized, especially when personal relationships between closely related individuals, particularly family members, are the decisive factor for the agreement and/or if similar agreements between unrelated parties are inconceivable.
Based on your description, it can be assumed that the personal relationships between family members are decisive for the different distribution and that gifts are involved. In this case, it is also important to note Section 42 of the Tax Code. According to this section, an abuse of legal structuring options occurs when an inappropriate legal structure is chosen, resulting in a tax advantage not provided for by law for the taxpayer. However, this does not apply if the taxpayer can demonstrate non-tax reasons for the chosen structure that are relevant based on the overall circumstances.
Best regards,
Anton Pernitschka
Tax Advisor
