rental to relatives
February 25, 2010 | 15,00 EUR | answered by Matthias Wander
I, a retiree, subject to income tax, own a property without any debt, so no interest expenses. This property is to be rented out to my daughter rent-free, with only the operating/administrative costs being paid. I will not have any income from this arrangement, therefore I cannot deduct any expenses from my taxes.
What does the tax office say about this? Do I have to regularly disclose my bank account to prove that no payments were made, possibly in cash? And do I need to draw up a rental agreement?
Best regards,
Dear inquirer,
Thank you for your inquiry, which I would like to answer based on the information provided and considering your situation in the context of an initial consultation.
When renting out to relatives, the following special considerations apply:
If the agreed rent is more than 56% but less than 75% of the local market rent, a total surplus forecast must be used to determine whether a total surplus will be achieved within 30 years or not. If a surplus is achieved, the advertising costs can be fully deducted. If no surplus is achieved or if the agreed rent is less than 56% of the local market rent, the advertising costs are deductible in proportion to the ratio of the agreed rent to the local market rent.
Since your daughter is making monetary payments, you are required to report these in your income tax return. The payments represent the gross rent. The paid gross rent is then compared to the local gross rent. Using the calculated percentage, the advertising costs (depreciation, property taxes, administrative costs, etc.) should be included in Annex V.
A written rental agreement between relatives is a requirement for the tax recognition of the rental relationship.
I hope this gives you an initial overview.
Best regards,
Wander
Tax consultant
