7 Real Estate Tax Tricks For Germany

Summary

This video explores seven real estate tax strategies in Germany that many people overlook, potentially saving thousands of euros. Key points include how to optimize property purchases, take advantage of tax-deductible renovations, and navigate depreciation rules. The video also covers the benefits of separating furniture from property in contracts, buying monument properties, and utilizing company structures for real estate investments. Furthermore, it introduces clever tax-saving strategies during property sales, such as the 'Ehegutten Schenke' approach between spouses and gifting properties during one’s lifetime to minimize inheritance taxes.

Takeaways

• 😀 Renovating an existing building can provide immediate tax deductions for renovation costs, potentially saving significant amounts depending on your income tax bracket.
• 😀 Buying an existing property allows for depreciation benefits over 50 years (2% annually), while new constructions depreciate faster at 3% per year, leading to higher annual tax benefits.
• 😀 When purchasing a property, separating furniture from the property price in the contract can reduce ground purchase taxes and increase depreciation benefits for the furniture.
• 😀 Monument properties (Denkmalschutzimmobilien) offer faster depreciation (12 years), but dealing with the regulatory requirements and bureaucracy can be a major downside.
• 😀 Owning property through a company (GmbH) can reduce rental income tax rates to 15%, but the costs of setting up and maintaining a GmbH may outweigh the tax savings unless managed correctly.
• 😀 Selling property within a marriage can result in tax-free transfers between spouses, saving up to 6.5% in closing costs and allowing for tax-free capital gains on the property’s appreciation.
• 😀 A seller loan between spouses or family members can create additional tax benefits by allowing the buyer to deduct loan interest while the seller only pays a reduced capital gains tax on the interest.
• 😀 If you're planning to gift property to your children, doing so while you're alive can save them from inheritance taxes, allowing for tax-free transfers of up to €400,000 every 10 years.
• 😀 Properties should not be kept until death for inheritance purposes—gifting during life can be a more tax-efficient strategy, particularly when combined with the seller loan strategy.
• 😀 Tax benefits in real estate investment depend on both your personal income tax bracket and the structure of your property deals—make sure to strategize according to your financial situation.

Q & A

What are the two main stages where real estate tax optimization is possible?

The two main stages where real estate tax optimization is possible are: 1) When buying the property, including which property you buy and how you buy it, and 2) When selling the property. Anything in between leaves little room for tax optimization.

What is the advantage of purchasing an existing building compared to a new construction in terms of taxes?

Purchasing an existing building offers the advantage of immediate tax benefits through renovation costs, which are tax deductible. This can provide up to €4,200 in tax benefits if your income tax rate is 42%. On the other hand, a new construction provides no immediate tax benefits.

How is depreciation different for an existing building versus a new construction?

An existing building depreciates over 50 years at a rate of 2% per year, offering about €1,800 in tax benefits annually. In contrast, a new construction depreciates at a rate of 3% per year, providing €3,000 in tax benefits annually.

What is the significance of separating the property and land value in the purchasing contract?

Separating the property and land value in the purchasing contract is important because it allows for tax benefits related to renovation costs. If the property and land are separated, you can depreciate the property but not the land, which maximizes tax deductions.

Why should you separate furniture from the property in the purchasing contract?

Separating furniture from the property in the purchasing contract can reduce the ground purchasing taxes, as furniture is not taxed in the same way. Additionally, furniture depreciates faster than the property itself, providing higher depreciation tax benefits.

Is it a good idea to buy a monument property for tax benefits?

Monument properties may offer substantial tax benefits through accelerated depreciation (12 years instead of 50 years). However, there are strict regulations on renovations and maintenance, and dealing with government institutions can be cumbersome. Therefore, the tax benefits may not outweigh the challenges, especially for first-time investors.

What are the potential tax benefits of holding property in a company (e.g., GmbH)?

Holding property in a company, such as a GmbH, can offer tax benefits like paying only 15% taxes on rental income, compared to up to 42% as a private individual. However, establishing and maintaining a company incurs significant costs, which must be outweighed by the tax benefits to make it worthwhile.

What is the 'Ear Gutten Shle' tax strategy for married couples, and how does it work?

The 'Ear Gutten Shle' strategy involves having one spouse buy a property, hold it for 10 years, and then sell it to the other spouse. This strategy avoids ground purchasing taxes on the sale, saving up to 6.5% in costs, and allows the couple to gain additional depreciation benefits. The property can also be sold with a seller loan, further increasing tax advantages.

How does selling property to a family member (e.g., spouse) create tax advantages?

Selling property to a family member, like a spouse, can avoid ground purchasing taxes, saving up to 6.5% in costs. Additionally, the property’s increased value can lead to higher depreciation benefits, and the transaction can be structured as a seller loan, allowing for tax deductions on loan interest.

Why is gifting property during your lifetime often better than leaving it to children as an inheritance?

Gifting property to children while still alive is often better than leaving it as an inheritance because the gift can be made tax-free up to €400,000 every 10 years. This avoids inheritance taxes, which can be as high as 50%, offering significant tax savings.