Reduction of interest rates
January 6, 2014 | 30,00 EUR | answered by Michael Herrmann
Dear Sir or Madam,
My brother and I have inherited a small, debt-free real estate package from our grandmother. Our question is as follows:
We each have approximately 500,000 EUR in loans on our own homes. These loans are due in the summer of 2015 and need to be refinanced. Is it possible to take out a mortgage of 1,000,000 EUR on the inherited property, pay off our loans, and claim the interest on taxes?
Furthermore, I have read that property management expenses can also be claimed on taxes. Even if it is done by a 'distant relative', such as a spouse. How much can these costs be claimed?
Thank you in advance for your answers and kind regards,
Alexander Metelmann
Dear questioner,
First of all, thank you for your inquiry, which I would like to answer based on the information provided and in the context of your commitment in an initial consultation. The response is based on the facts presented. Missing or incorrect information about the actual circumstances can affect the legal outcome.
Interest expense is deductible as advertising costs if it serves the acquisition, retention, or securing of income. This is the case with real estate when the interest is incurred for a loan for acquisition. This is not the case here. Collateral by the property is not relevant for tax purposes.
Property management costs serve the acquisition of rental income and are therefore deductible. If property management is transferred to close relatives, the agreement and remuneration must withstand an arm's length test to be tax-deductible. The specific amount of management costs depends on the agreed scope and must be market-oriented. Since property managers are not bound by price requirements, it is recommended to inquire about different prices.
I hope that these explanations have provided you with a sufficient overview of the situation in the context of your commitment and this initial consultation.
Kind regards,
Michael Herrmann
Dipl.-Finanzwirt (FH)
Tax Advisor
