Couple's swing

Spousal Swing - The spousal swing is a tax strategy in which one spouse sells a rental property to the other in order to create a new depreciation base (AfA). The purchase price - typically the current market value - becomes the new depreciation base. This allows the purchasing spouse to depreciate the property again over its full useful life, even though the selling spouse had already largely exhausted the old depreciation allowance. The Federal Court of Justice (BGH) and the tax courts have generally recognized the spousal swing as permissible - under certain conditions.

How It Works and Tax Benefits

Initial Situation

One spouse has owned a rental property for 20 years. The straight-line depreciation (2% per year) has already been used up by 40%-the remaining depreciation is minimal. The book value of the building is well below the current market value.

Implementation

1. Sale of the property to the spouse at current market value (e.g., €500,000 for the building portion)
2. The purchase price is actually paid-typically financed through a bank loan
3. The purchasing spouse can claim the full depreciation on the new purchase price: 2% × €500,000 = €10,000 annually
4. The interest on the loan is deductible as income-related expenses

Tax Savings

Instead of, for example, €4,000 in remaining depreciation per year, €10,000 in depreciation plus financing interest is now available as income-related expenses-at a marginal tax rate of 42%, this represents a tax savings of several thousand euros annually.

Requirements and Risks

For the tax authorities to accept the “spousal swing,” the following conditions must be met:

• Arm’s-length transaction: The purchase price must correspond to the market value-no favor price, no inflated price
• Actual payment: The purchase price must actually be paid-a mere book transfer is not sufficient
• Independent financing: The purchasing spouse must arrange the financing independently-no mere debt restructuring
• No agreement to retransfer: There must be no agreement to retransfer the property at a later date
• Real estate transfer tax: Sales between spouses are exempt from real estate transfer tax under Section 3(4) of the Real Estate Transfer Tax Act (GrEStG) - a significant advantage
• Speculation period: If the selling spouse has held the property for less than 10 years, income tax is due on the capital gain (Section 23 of the Income Tax Act (EStG))

Current legal situation and abuse of tax planning

The main risk of the “spousal swing” lies in its classification as abuse of tax planning under Section 42 of the German Fiscal Code (AO). Tax authorities examine in particular whether the transaction stands up to an arm’s-length test: Would unrelated parties carry out the same transaction under the same circumstances? A genuine purchase price, genuine external bank financing, and an actual change in economic circumstances are the decisive criteria. The Federal Fiscal Court (BFH) has clarified in several rulings that a “spousal swing” is acceptable if the purchase price is in line with market conditions, the cash flow actually takes place, and there is no agreement regarding a subsequent retransfer. Tax authorities in Bavaria-including the Nuremberg-South and Nuremberg-North tax offices-regularly scrutinize such arrangements, which is why careful documentation is essential.

Practical Tip for Property Owners in Nuremberg and Franconia

For property owners in the Nuremberg metropolitan region who have held a rental property for many years, the “spousal swing” can offer significant tax optimization-especially for properties with sharply increased market values, which has been the case in nearly all districts of Nuremberg over the past 10-15 years. We recommend discussing the arrangement before proceeding with a tax advisor specializing in real estate tax law and having a market value appraisal prepared by a publicly appointed and sworn expert to document the purchase price for the tax office. The costs for the notary (approx. 0.5-1% of the purchase price), the land registry office, and the appraiser (approx. €1,000-2,500) are typically recouped within 1-2 years through tax savings for higher-value properties.

Frequently Asked Questions

Is the “spousal swing” legal?

Yes-the tax courts and the Federal Fiscal Court (BFH) have generally recognized the “spousal swing” as permissible tax planning, provided it stands up to an arm’s-length test. The key factor is that the transaction is actually carried out: a genuine purchase price equal to the market value, genuine external bank financing by the purchasing spouse, and an actual transfer of ownership. A purely formal transfer without economic substance-such as when the existing loan is simply continued and no actual cash flow takes place-will be classified by the tax office as abuse of tax planning under § 42 AO and denied tax recognition.

Is real estate transfer tax due in the case of the “spousal swing”?

No-real estate transfers between spouses are exempt from real estate transfer tax under Section 3(4) of the Real Estate Transfer Tax Act (GrEStG). This applies both during an existing marriage and in the context of the division of assets upon divorce. The tax exemption is one of the main advantages of the “spousal swing” compared to selling to a third party, since real estate transfer tax in Bavaria amounts to 3.5% of the purchase price and, for a market value of €500,000 for the building portion, already amounts to €17,500-which would otherwise significantly reduce the financial viability of the arrangement.

Is the “spousal swing” worth it for every property?

No-it is primarily worthwhile for rental properties with a high market value and largely exhausted depreciation, where both spouses have income and the purchasing spouse has a high personal tax rate. For owner-occupied properties, there is no depreciation, and thus no tax advantage. This arrangement may also be uneconomical for properties with low capital appreciation or a short holding period (less than 10 years-speculation tax on capital gains under § 23 EStG!). An individual calculation by a tax advisor is essential in any case before a transaction is initiated.

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