Anyone who sells real estate within the family, for example to their own spouse, can lift considerable depreciation potential. At the same time, the buyer is obliged to transfer the agreed purchase price – and the design can fail in practice. One solution is the so-called seller loan, in which the seller lends the purchase price to the buyer. The maturing interest rates allow further design potential to be exploited.

First principle: How does the seller loan work?

Before a loan is even needed, buyers and sellers must face each other. In practice, this is usually the case with real estate. For example, the wife wants to sell her own apartment building tax-free to her husband after 10 years, so that he can write off the current market value of the property again.

Usually the husband would now borrow the necessary capital from a bank. In the case of the seller loan, however, the seller, here the wife, takes the place of this same credit institution. So she lends the money to her husband by being able to pay off the purchase price in installments – for example, over 20 years.

The seller assumes a “double role” in the seller loan. Because he is in two respects contractual partner of the buyer, on the one hand with regard to the sale of the respective economic good and on the other hand with regard to the necessary loan agreement.

Tax treatment of a seller loan

A seller loan can offer significant tax benefits. This is especially true if – where the loan form is also most frequently encountered – the corresponding contract is drawn up within the family association. Because vis-à-vis foreign third parties, only a few sellers would waive an immediate payment of the purchase price.

Seller loans between relatives, such as spouses or parents and children, must be designed in a foreign standard. Only then will they be recognised for tax purposes, i.e. lead to a deduction of interest according to § 9 (1) sentence 3 no. 1 EStG. However, the contracting parties are free to make the loan agreement as unfavourable as possible for the buyer in order to justify a higher interest rate.

2.1 Treatment of the loan with the seller

The seller – for example, a property – acts as a lender through the seller loan at the same time. The interest received leads to income from capital assets, whereby § 32d paragraph 2 no. 1 EStG does not apply in the case of an external arrangement of the contract. As a result, the interest with inflow (§ 11 EStG) is subject to a taxation of only 25 % plus solidarity surcharge.

To be taxed, however, is not the entire monthly installment, but only the so-called interest share. This results from the repayment plan and declines – at least with classic annuity loans – with the term.

Exceptions are so-called terminal loans. In the case of the final seller loan, the buyer of the property only pays back the actual loan amount later, about after 10 years, in a sum. As a result, only interest accrues during the term, which leads to a full taxation of the entire payments.

2.2 Treatment of the seller loan with the buyer

The buyer pays interest to the seller as part of the seller loan. If the acquired asset is used to generate income, these are deductible as advertising costs according to § 9 (1) sentence 3 number 1 EStG. Alternatively, there are operating expenses, with the so-called interest share also being deducted.

On the buy side, interest payments regularly have an impact of around 50%. If the buyer pays EUR 10,000 to the buyer, he saves around EUR 5,000 in taxes. However, the seller only has to pay tax on the money received at 25%, i.e. around EUR 2,500.

Spouses in particular can take advantage of such a tax rate difference with the seller loan. This is because the interest payments “remain in the family”, but reduce the income taxed with around 50% and are at the same time subject to a burden of only 25%.

Incorporate seller loans into tax arrangements!

If real estate is sold within the family, the design via a seller loan makes sense primarily because of the tax rate difference. In addition, there are gift tax design possibilities, because the creditor of the loan claim can forgive a part of the claim every 10 years. Such a waiver is tax-free within the framework of the estate and gift tax exemptions.