Taxes if house is credit free

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So now you no longer want to sell but to sublet?

I assume we are talking about more than 520€ turnover a year, see here: 

Tell the Steuerberater to save his effort researching this (by the way, the answer is self-evident, not too impressed by him): as long as you three are owners, there is no "let's donate the rent to our son so as not to have to do a tax return". 

The only constellation there could be is 3 people taxing their shares of the rental profit and if they then felt like it, 2 (mum, dad) of these 3 people could gift the after-tax profit to the third person (you). Said gift of the rental profit would then be gift-tax-free, since it's less than 400,000€ (evidently ;)), so at least no further gift tax return needed ;)

 

There are only 2 possibilties:

 

Either they donate their shares of the flat to you before you start letting the flat

--> you are then the only owner

--> you do a tax return declaring the rental income in Anlage V.

 

If things remain as they are, you three are actually a GbR (= Gesellschaft bürgerlichen Rechts), which is a kind of Personengesellschaft. In your case, a group of people who jointly own a flat.

The GbR would then have to do a separate tax return, a gesonderte und eonheitliche Feststellung declaring the total rental profit: https://www.steuerberaten.de/tag/gesonderten-feststellung/

Then, each of you would have to do a separate income tax return (if your parents are still married, they can do a joint one for both of them), in which each of you declares their share of the rental profit and taxes it.

So in total that's 4 (or 3 if your parents do a joint tax returns) income tax returns.

Also totally self-evident and something any Steuerberater should know in his sleep...

 

Are you still wondering why I suggested simplifying things by having your parents gift you their shares of the flat?

If you're the only owner, you just need to do one income tax return in which you declare the rental profit: yours.

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Hi PandaMunich,

 

Thanks for the amazingly quick and detailed reply.

 

I'll reply to your points below:

 

"So now you no longer want to sell but to sublet?"

 

     - The plan was to sell the rear flat first to get some cash to pay back the parents and have some busness development money. It turns out, however, that property prices are rising 17% year on year in Kreuzberg in Berlin and so it makes more sense to wait until early 2018 to sell. So, in the meantime, it makes sense to Air BnB the small flat for income in the meantime. I also note what you said in an earlier post about the Finazamt demanding money for capital gains if we split the 30m2 flat from the main property in the Grundbuch, even if we haven't sold it yet, so it seems sensible to leave it as one property in the Grundbuch and just close and lock the door between the 70m2 area and the 30m2, thus leaving a tidy and easily rentable space.

 

On a slightly different point, we did already submit and have accepted the plans to split the 30m2 property to the Bauaufsicht and they accepted it. So, in the Grundbuch it is one 97m2 property but in the local Bauaufsicht there is a Grundriss showing a wall separating the two properties and the 30m2 part marked for WEG use. I'm hoping this won't mean we will fall foul of the Berlin law on not using WEGs for Air BnB.

 

It may end up being the case that it is simpler in the end to sell the whole property as one, rather than having to notarise the splitting of the 30m2 property at some point in the land registry. I'm still leaving the splitting and selling option open in case I need cash but want to keep the 70m2 part of the property still for a while. If I do end up selling the whole 97m2 property all together I am hoping that the differing Grundriss in the Bauakten won't stope the sale. If you have any insight on that I would be intersted to hear it. 

 

"I assume we are talking about more than 520€ turnover a year, see here:"

   - Yes, thank you for the link you provided.

 

"Tell the Steuerberater to save his effort researching this (by the way, the answer is self-evident, not too impressed by him): as long as you three are owners, there is no "let's donate the rent to our son so as not to have to do a tax return".

 

   - I was also surprised that he wanted money to find out what should be a simple answer for a Steuerberater. 

 

"If things remain as they are, you three are actually a GbR (= Gesellschaft bürgerlichen Rechts), which is a kind of Personengesellschaft. In your case, a group of people who jointly own a flat.

The GbR would then have to do a separate tax return, a gesonderte und eonheitliche Feststellung declaring the total rental profit: https://www.steuerberaten.de/tag/gesonderten-feststellung/

Then, each of you would have to do a separate income tax return (if your parents are still married, they can do a joint one for both of them), in which each of you declares their share of the rental profit and taxes it.

So in total that's 4 (or 3 if your parents do a joint tax returns) income tax returns."

 

   -This sounds ike a nightmare.

 

 

Are you still wondering why I suggested simplifying things by having your parents gift you their shares of the flat?

If you're the only owner, you just need to do one income tax return in which you declare the rental profit: yours.

 

     - No, I'm definitely not wondering. I totally agree. I'm hoping this latest clarification you have provided will convince them to just turn the whole property over to my ownership as they don't want any capital gains or rental/business income anyway. Here's hoping!

 

Thanks for yoiur excellent help. It is so incredibly useful as I still can't find a Steuerberater who actually knows anything.

 

Best,

 

Paul : )

 

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Hi PandaMunich,

 

So, following your excellent advice and detailed information, my parents agreed that it is easier to just gift me their share of the flat. So, considering the implications of that, I owe you a drink or some bamboo shoots.

 

I am now goimng to immediately arrange that. A couple of questions about that:

 

- My parents have neem part owners from end 2015 until now and I haven't submitted any tax returns for 2015, 2016 or 2017 as I haven't had a Steuerberater or, frankly, clarity on what was the bestcourse of action. Can we avoid any need for my parents to submit a tax return for 2015-2017 because they are now gifting me the property, almost like we were backdating the gifting to the original purchase?

 

- Do you have practical advice on how to do this? Is it just a case of finding a notary? And will I need a Steuerberater to partly/fullt arrange this?

 

- I am of course now searching for a Steuerberater again, so if you have a good one to suggest I am all ear.

 

Cheers,

 

Paul

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They would only have to do tax return if that flat had generated income up till now.

 

If it did generate income, there's no backdating, they would have to do the GbR tax return and their personal income tax returns.

 

A notary will be enough.

Officially, you would also need to do a gift tax return, because each parent is only allowed to gift you up to 400,000€ every 10 years, so the Finanzamt likes to keep tabs on these gifts.

Who knows, they may gift you a few more flats within the next 10 years ;)

But I wouldn't bother, after all, this is a one-time thing.

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Hi PandaMundich,

 

That's great advice. Thanks so much! No income has been generated, so that saves a lot of expense and hassle.

 

Do you know if I'm obliged to submit a tax return in Germany before any income is made? So far, I have just lived here and being allocated a tax number seemingly automatically.

 

Can I wait until I start making income in Germany to submit a tax return? Or will it be a problem that I've been registered as a resident here since October 2015 but have made no contact with the Finanzamt? I made a small amount of income from my UK based business in 2015, which was submitted in my UK 2015/2016 tax return, but nothing in 2016 or 2017 in UK or Germany. I've just been renovating the property and studying.

 

Best,

Paul

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No, don't worry.

If you didn't have any income, you do not have to submit a tax return.

 

Though if you mean studying at university, you can submit tax returns voluntarily, in order to generate losses because of the expenses for your uni degree. These losses will be carried forward into the year when you finally have income, and lower your taxable income then.

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Hi PandaMunich,

 

Thanks for the reply. Well, there are substantial losses from 2015 for Makler, Notary and Grundsteuer fees, in 2016 for renovations and business relecant online training, and now in 2017 for more renovations. Can I just add them all into one single tax return for 2017, even though many of the expenses were not in this year? Or do I have to belatedly submit tax returns for any years that I want to include losses in, even though no income was made in those years?

 

I'm just thinking forward to when I eventually get a Steuerberater and concerned that I may get charged a lot extra for submitting multiple tax returns, so just one for 2017 would perhaps be easier and cheaper.

 

Thanks for your help.

 

Best,

 

Paul

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No, you didn't understand.

I was talk about costs you incurred for getting your university degree: cost for university (fees, Studentenwerksbeitrag), interest for a loan to cover your living expenses while studying at university, textbooks, commuting costs to university, and so on.

These are Werbungskosten for a later employee or Betriebsausgaben for a later self-employed activity.

From your above list, only the cost of the online training could be eligible for that.

 

The costs you incurred for buying the flat are lost to you - they would only appear in a tax return (but depreciated over 50 years, i.e. only 2% of them every year) if you start letting the flat and therefore start having taxable rental income.

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Oh, I see. When I said I was studying in 2016 I was referring to an online training course I have been doing to prepare me for my health coaching business, which I may or may not run from the property, so that may not fit into the scenario you described for offsetting costs incurred at university.

 

Thanks for your clarification on the Makler, Notary and Grunsteuer costs of buying the flat being lost to me unless I sublet the flat.

 

2 questions:

 

- Are the renovation costs also lost to me unless I sublet the flat?

- If I do sublet the flat, my question still stands: Can I just submit one tax return for 2017 which includes costs from 2015 and 2016, or would I have to submit three?


Thanks a lot for you advice.

 

Best,

 

Paul

 

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  1. Yes, sorry. There is a 20% tax credit for the labour part of renovation costs that you have an invoice for and which you paid by bank transfer: http://www.finanztip.de/haushaltsnahe-dienstleistungen/ But that doesn't apply to you since you didn't pay any German income tax in 2015 and 2016, you cannot get that tax credit, since you don't have any German tax to reduce.
  2. The 2015 and 2016 parts of the depreciation of your costs over 50 years are lost to you, you only get to claim for the 2017 part in your 2017 tax return.
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Thanks. That's all very clear. I'll get onto finding a notary then to change ownership over to me now that I know that the Finanzamt can wait till I'm ready to submit a tax return. Great.

 

Thanks for your help.

 

Best,

 

Paul

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@PandaMunich,

 

Regarding the tax exemption rule for first 10 years I have a question. 

 

I have a house which we bought in 2017 and are living in it since then. 

 

Next year 2019 we need to move to another city due to change in job. 

 

I intend to sell the house next year but I do not know how much time it will take to sell the house. 

 

So, for example if me any my family move out in May 2019 and house is sold in August 2019, will we have to pay taxes because house was empty from May - August ? 

 

Thanks for your reply in advance

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So, semi-regretfully, I'm selling up our rental apartment (signing at the notary this month) to hopefully buy our 'forever' home.  On the plus side, theres a hefty amount of profit, but on the down side, as we've held the property for only 8 years,  I'm going to see a whole heap of Tax.  (around Eur90k after all the deductions. )

 

So I'm wondering if there are any creative (but legitimate) ways of minimising this tax?

 

Only had one thought so far:

- I'm married, non-resident in Germany (currently in the UK).  As far as I'm aware, despite signing the deal this year, the tax will only hit in the 2019 tax year (payable 2020), as thats when the money transfers.  Could we live for a few months in Germany in 2019, declare ourselves resident for tax purposes, split the income with my wife, and thus reduce the tax obligation in this way?

(As a non-resident, to my understanding you cannot split your taxable income with your wife.  I think theres additionally some solidarity fee (5.5%?) for non-residents.  This might reduce the total? )

 

TT'ers - Any comments or other ideas?

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with 90k on the line why on earth have you not hired a steuerberater?

 

I don't see how splitting it with your wife would make any difference as you'd both effectively pay half the of the 90k - afik it's taxable as a capital gain, not as income. 

 

I feel like I'm missing something

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I've got a steuerberater, who'se been handling the property taxes for the rental income for the last 7 years - I'm just not sure that his heart is really in it...?  (It takes a week or two to get a reply on anything, and then there is little to almost no advice accompanying any answers to the questions.  Not sure if it is a translation issue, a liability thing, or he's just more of a spreadsheet compiler than Tax reduction master, but just have that niggle of a feeling that with the sums involved, its worth researching for myself. )

 

To my understanding, there is no dedicated Capital Gain Tax -  The gain (Sold price minus original price + all expenses minus amortisations) gets entered into your Personal Income Rate.    So, my personal income for the year leaps up to ~Eur 220K, and this get taxed at 42%. 

 

So, I was thinking that if I could maybe claim her tax allowances, it'd save us a bit on the tax - But on the flip side we're have to relocate to Germany for a few months at least, which would probably cost more than we'd save on tax.

 

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