Revenue:

Rental income | EUR 26.400

Interest income | EUR 6,000

Advertising costs:

Depreciation | EUR 30,000

Interest costs | EUR 6,000

Maintenance costs | EUR 4,000

Total | EUR -7,600

Using property with a spouse swing is particularly popular among spouses with property ownership. Because by the repeated sale of real estate among each other, if you have waited for the speculative period, you can raise new, higher depreciation potential in a tax-neutral way. However, in addition to the pure sale of real estate among each other for spouses, there are also two other alternatives. Both are based on the establishment of a joint real estate GbR by the spouses. However, there is no real estate sale here, but one uses the spouse swing by selling the GbR shares.

1. Use property with spouse swing – Introduction

Families who have real estate assets can benefit from special tax benefits. In addition to a relatively safe investment, real estate even offers two different ways to make money with them. On the one hand, real estate can be easily rented, which can be quite lucrative in large German cities, especially for buildings that serve residential purposes. After all, with the general demand for housing, rents have been steadily increasing for years. On the other hand, the sale of real estate is usually a lucrative business. Here, too, the high demand on the housing market leads to rising real estate values.

So you rent out real estate until you want to sell it for a profit. But is that all? Hardly, because then the article would end quite abruptly in the first chapter at this point. So let's talk about taxes. Both the private rental and the private sale of real estate are in principle taxable. But there are also exceptions and restrictions.

When renting real estate, income is charged against advertising costs, especially expenses. However, the depreciation of acquisition costs is also part of the advertising costs. Small digression: Who inherits a property, for example, has no acquisition costs. Therefore, heirs or gifted persons simply continue the depreciation of the previous owners. But anyone who buys a property assumes the depreciation of completely new acquisition costs, which is probably higher due to the general increase in value compared to the previous owner. And in the case of private sale, you can earn the profit tax-free after the expiration of the ten-year legal speculative period. But what does this have to do with real estate and the ominous spouse swing?

2. What Is the Spouse Swing With Real Estate?

Spouse swings are tax arrangements in which family members transfer assets among themselves in order to benefit from tax benefits. The tax advantage arises from the fact that one can use the expiration of the speculative period to sell real estate belonging to the respective spouses tax-free among themselves. This does not create a real profit, because the increase in value within the own family is added to the higher selling price. However, this results in higher acquisition costs, which consequently lead to higher depreciation. These, in turn, contribute to the reduction of taxes on rental income.

If you carry out these back and forth sales every ten years, in order not to have to tax profits thanks to the expiration of the speculative period, there is a back and forth of the property situation – ergo one speaks of a spouse swing, in this case with real estate. However, the spouse swing can also be implemented with other assets, but the presented here variant with real estate is the tax-wise far most attractive.

3. Spouse swing with real estate: the direct sale among spouses

Real estate transferred with spouse swing: starting point of our calculation example

Let us now immediately transform this general declaration into practice: The fictional Oscillante couple has one house each, which they rent independently to third parties. Both partners bought their respective homes just over ten years ago. In both cases, the houses cost EUR 1,000,000, so that the respective depreciation rate with an approach of 2% is EUR 20,000 per year. Assuming that the rental of the living space in both houses takes place with a monthly rent of EUR 2,000, one comes to a difference of EUR 4,000 at the end of the year. However, further costs were added over the year, for example for maintenance measures. Let’s just assume EUR 4,000 here. Consequently, the tax income for each house should be set at EUR 0 – although the rentals each gave both spouses a net inflow of EUR 20,000.

Now let us implement the spouse swing with the spouses Oscillante by letting them sell their properties to each other. Mrs. Oscillante now sells her property to her husband for EUR 1,500,000 and Mr. Oscillante also sells his property to his wife for EUR 1,500,000. What have they achieved with this?

3.2. Tax consideration of the outcome of the spouse swing

First, they have set a higher property value. However, since they have earned only EUR 200,000 from the rental over the past ten years, EUR 300,000 of the respective purchase price remains unpaid. These remaining purchase price claims are granted to each other by the two spouses at a market interest rate of 2 %. To finance this additional effort, they increase rents by 10%. Annual rental income now amounts to EUR 26,400 and interest expense EUR 6,000. But it gets really interesting when we look at depreciation: with a depreciation rate of 2%, the spouses can now write off EUR 30,000 annually. Let's take it all together.

Secondly, what we see is that the new situation after the mutual sale of houses creates a tax loss. In fact, the spouses now even cash in EUR 22,400 each year. On the other hand, the spouses can now use the losses to offset them with other income.

Thirdly, interest rates are beneficial. While it is used to tax, in general terms, the surplus that has to be calculated with the personal tax rate of up to 45%, the interest income only pays the capital gains tax at a flat rate of 25%. The spouse swing with real estate has therefore already led to clear advantages in the first implementation.

4. Spouse swing with real estate in a GbR

Another variant of the spouse swing with real estate provides for the establishment of a real estate GbR in which both spouses participate. Here we want to distinguish two cases. On the one hand, both spouses hold 50% of the GbR shares and in the second case, one partner holds 100% and the other consequently 0%, which means that one can also implement arrangements in which the properties were previously privately owned by only one spouse.

This design model works even if only one property exists. If the spouses were to be involved in the ownership of the property in equal parts, there would be a problem with the mutual sale. Because if one partner simply sells his house to the other – and vice versa – then there is no acquisition of something substantially new. Consequently, the tax office would regard this as an abuse of design and would not allow new depreciation.

We deal with Immobilien-GbR. Instead of the property, you can now sell each of the 50% shares in the GbR to each other. This also makes the spouse swing. Here, too, you can make the sale tax-free after ten years. Likewise, there are new and higher acquisition costs due to the increase in value. These therefore lead to new, higher depreciation. Likewise, interest can be charged when financing the higher purchase price, as described above. Tax benefits are just as much as with the direct sale of real estate among each other.

Incidentally, it is the same when designing with an unequal share ratio. If we assume the extreme case of 100% and 0% participation, however, with each new approach the spouse swing is only sold in one direction. In order for this to be worthwhile for tax purposes, one should think about the advantages of a co-investment according to § 26b EStG. Otherwise, the spouse who currently holds 100% of the GbR shares would have to tax the income at a significantly higher personal tax rate.

5. Conclusion on the spouse swing with real estate

First of all, it should be mentioned that there is no real estate transfer tax when selling real estate between spouses. This is regulated in § 3 no. 4 GrEStG. Therefore, if the spouse swing with real estate does not threaten any further tax hurdle. The only costs incurred in connection with the acquisition of the property at the spouse’s swing are notary costs and court costs for registration in the land register. In this case, one can assume a total of about 2% of the purchase prices. However, since these additional costs can be included in the acquisition costs, they are included in the depreciation anyway, even if only annually with a share of regularly 2 %. The design with a real estate GbR has the advantage here that the sale process of the GbR shares does not entail notarial costs or legal costs.

In the long run, the spouse swing with real estate is a very attractive tax design. Here, families who opt for the real estate GbR variant can even include their children. This means that the tax advantage increases with each other person involved. But it is also clear that such designs should always be planned individually. Therefore, we recommend that you contact us beforehand. We analyze your personal situation, also record your wishes and other circumstances in order to find the optimal design for you based on this overall picture. So get in touch with us if you want to be sure to make the most of renting your property with a spouse swing.