Tax Trap in Property Gifts
Whoever has not yet fully paid off a property and transfers it gratuitously, i.e., as a gift, before the end of the ten-year period must pay taxes on the assumed debts. This was decided by the Federal Financial Court (BFH) and makes the transfer of encumbered real estate a potential tax trap.
Tax Consequences of Debt Assumption
Specifically, this means: If the recipient of the gift also takes on the existing loan liabilities during the gift, this amount is treated as part of the acquisition value for tax purposes. This creates a tax obligation on the value of the assumed debts. The ten-year period refers to the period for private sales transactions according to § 23 of the Income Tax Act (EStG), during which a sale or transfer can be tax-relevant.
Impact on Savers and Investors
This ruling has direct implications for savers and investors who utilize real estate as part of their investment strategy. Particularly when properties are still financed and are to be transferred before the expiry of this period, caution is advised as unexpected tax burdens can arise.
Partially Gratuitous Transfers
Additionally, there are rulings concerning partially gratuitous transfers of properties: In such cases, a distinction is made between the paid and unpaid share. The acquisition costs must be proportionally allocated. The tax office often tries to make a division here to levy taxes.
Conclusion
Overall, it indicates:
- A gratuitous transfer of a not yet paid-off property leads to the taxation of the assumed loan.
- The ten-year period plays a crucial role in determining potential tax liability.
- For investors, it is important to consider these regulations in their real estate strategy.
This BFH ruling thus highlights the risk of hidden taxes with premature gratuitous transfers of encumbered properties.