Selling your home to your partner can make the purchase of an investment property more attractive, as it remains highly profitable for longer. Likewise, it can make turning your own home into a rental more attractive. This is discussed in the final section.

But first, the case of an outright investment property.

How Does the Ehegattenschaukel Work?

The Ehegattenschaukel exploits the fact that you can depreciate your rental property in Germany. And that, when you sell a rental property, the depreciation clock starts ticking anew, while you pay no property transfer tax between partners.

The benefit of selling to your partner is therefore fourfold:

• You can begin depreciating the full built-up value again.

• The price of the property has increased, so the depreciation is higher.

• You pay no property transfer taxes as the sale is to your partner (§ 3 Nr. 4 GrEStG); and

• If you lend her/him the money, you can also save on your combined taxes through the differential tax treatment of the interest paid and received.

If both partners own a property, you can swap properties. More commonly, you can sell a property you own to your partner, provided the sale is at market price. You can also offer a loan to facilitate the sale, provided it is at market conditions.

Even more common, this tax strategy also works if you are married in a community of property (in German, "gemeinsam veranlagt") and each owns 50%. However, you need to ensure a proper transfer of the property, including a notarized purchase contract with all standard terms, and exclude the property from the common property going forward.

Note: You need to wait 10 years before selling a rental property to your partner to avoid capital gains taxes.

TIP: This model is not only usable for married couples and registered partners “eingetragene lebenspartner”, but also for other direct relatives – for example, between a parent and their child or between grandparents and their grandchildren.

Let's calculate the gains for the example of a representative property bought for 200K € to understand the size of the gain as it relates to the property price.

As shown in the following table, the key driver of the Ehegattenschaukel's attractiveness is the property's appreciation. Over time, your property appreciates, making a restart of the depreciation (AfA) more attractive. Therefore, the faster the appreciation rate, the more attractive it is.

Tax Savings Depend on Year of Sale to Partner and Appreciation Rate

1/ Selling before 10 years does not make sense, as you would have to pay capital gains tax.
2/ This is for a relatively new property. The remaining depreciation is 3% for a house built from January 1, 2023, on.

If you sell the property in year 15, your property's depreciation jumps from 6.000 € to 10.806 € or about 80%, at an appreciation rate of 4%,

The exact tax benefit of this increased depreciation depends on your tax rate. The top rate is 47,25%--including the solidarity charge. At this top rate, a reset of the property value for tax purposes would gain you about 47,25% x 4.806 € = 2270 €.

So, for a recent property, you can gain almost 50% of a 3% depreciation on an 80% price jump = 1,2% of the original purchase price, and about ⅔ % of the current price.

But you also have to pay the notary cost of about 2%. Therefore, in this case, it would take 3 years to recoup the notary costs. Over 10 years, you would gain about 7* ⅔%, or almost 5 % of the property value at the time of Ehegattenschaukel. 

Another Example of the Ehegattenschaukel

If the appreciation is less or your tax rate is lower, the gain will be less. If the appreciation was just 50% after 15 years and you sold to your partner for 300K €, and you bought the home for 200K €, you can increase the amount you deduct by 3% of 100K, or 3.000 €, annually.

If your tax rate is just 40 %, the 3.000 € gain will net you 1.200 € per year, or 0,4% of the increased property value. This transfer too will incur notarization costs, which depend mainly on the transaction value (in addition to the mortgage amount, which we ignore for now), and are roughly 2% or 6.000 € in this example.

This means, in this example, that you can recoup the notarization costs in five years.  If the property had appreciated by 100%, you could recoup the notary fees in 2 1/2 years.

Extra Tax Savings on a Purchase Loan to Your Partner

The above is an underestimate:

1. You can also depreciate the notarization costs at 3%.

2. Your real estate depreciation periodruns for many more years: an extra 10-15 years for a total of 33 years, if you decide not to repeat the Ehegattenschaukel.

3. You can gain money by providing a loan to your partner. If [s]he has a higher marginal tax rate than the capital gains tax rate of 26,375% you can gain by providing a loan. The reason is that [s]he can deduct the full rental payment from her/his income tax, while you only need to pay capital gains.

In the example of the 300K € purchase price, you could extend your partner a 100K loan to buy you out at a market-conforming interest rate of 4 %. If their tax rate is 40 %, you together would save 40 % minus your rate of 26,375 %, resulting in 13,625 % over 4.000 € (100k € loan at a rate of 4 %) in tax savings. This is another 545 € in net annual income.

Together with the depreciation of the notary costs, you would recoup about 0,6% of the notary costs per year. Therefore, you would recoup your notary costs in just over 3 years, rather than 5.

A Detailed Example Calculation

When and How Often Should You Do The Eheghattenshaukel?

This depends on the cost versus the benefits. The costs are the notary fees for the transfer; the benefits are the tax savings.

Rule 1. You need to wait at least 10 years after buying or renting out your investment property to benefit from the capital gains tax-free transfer.

Rule 2. You should also keep the property for at least as long as the break-even period, 3 years in the example above.

Rule 3. And of course, the Eheghattenshauhel should yield you a higher deduction.

TIP: The exact calculation is complex, but typically it is optimal to do the Ehegattenschaukel after holding the property for 11-12 years. You can calculate the breakeven period by dividing 2% by the appreciation rate of your property, multiplying by 3%, and multiplying by your marginal tax rate.

What are the Benefits and Drawbacks of the Ehegattenschaukel?

As discussed above, the financial benefits and the main drawback are the cost of notarization, which can add up to about 3-6% to the increased market price over 10 years following the Ehegattenschaukel. In practice, there are a few more drawbacks to consider:

1. The first is the effort required. 

2. If you plan to apply it in the future, there is the risk that laws will change, and this benefit is discontinued.

3. It may lead to an unequal partition of the benefits between partners. Make sure the deal is fair —for example, by offering a separate gift to your partner or a relatively high interest rate, within reasonable limits.

Should One Partner Buy 100% Now so that You Can Maximize the Ehegattenschaukel in 11-12 Years' time

Typically, that option is often unavailable. You may not have enough savings or income to obtain a mortgage on your own. If it is, you need to be sure you are both on the same page, and it is often better to gain more experience with joint ownership than to try to squeeze the final tax-savings drop from the purchase from the start.

After 10-15 years, you can always still transfer 50% ownership and just earn half the gains.

What is Your Next Step?

If you are single, buying on your own, no further action is required. Then, if you have a partner in 10-15 years, you could benefit at that time from this construct.

If you are currently partnered, check whether you can afford an investment property on your own. Or your partner may buy one, and you buy one. You are well-positioned to benefit from this tax strategy and may anticipate a more extended, more profitable holding period.

If you buy a property by yourself using shared savings, do be fair and smart. For example, you can enter into a side agreement with your partner to split the property's gains.

Do talk to an investment advisor. In the end, what matters most is if you buy the right property, if you leverage yourself appropriately--so you make your money and your income work for you.

And yes. Do take action. In a busy life, it is easy to put things off, but that can cost you the most. Acting early helps you secure a sound financial future.

And yes, this is not tax advice. We are not tax advisors. Even if we can calculate better than they do;), you need to check the detailed conditions and your situation with them.

Tax Tips for Turning Your Own Home Into a Rental Property 

When you currently live in your own apartment and consider renting it out, you can also benefit from a transfer of ownership. For example, if you own a 50-50 apartment built in 1960 with your partner, which you paid 100K € for 10 years ago and have been living in yourselves since then. Let us assume you also have a remaining mortgage balance of 80K €.

If you start renting the apartment out now, you could depreciate 2% of 100K €  and deduct 2.000 € from your taxes. However, if it is now worth 300K euro, you could also first buy out your partner for 150K euro.  If you buy out your partner, you can depreciate 50% x 100K €  x  2% + 50% x 300K € x 2% = 4.000 €.

So you double your depreciation and tax deduction! The cost of the transfer should be on the order of 2% of 150K € or 3.000 €, but you should be able to recoup that quite quickly. In about 3 years, if you are in a high tax bracket.

You can extend a loan to your partner for the150K €, and then benefit from additional tax deductions as discussed above. You will need to resolve your mortgage situation with the bank. After all, you have a remaining loan of 80K € that is undoubtedly in both your names. If you have had the mortgage for 10 years, you can cancel your loan. If fewer years have elapsed, you may need to persuade your bank and may incur a fee.

In any case, you will also need to find a bank to provide you with an 80K € loan just based on your income. You could also try to borrow a larger amount if you want to use the opportunity to withdraw some cash. Your partner could also lend you the money for buying her/him out, and you both could benefit from the fact that your partner then pays 26,37% in tax while you can deduct the cost at a likely higher tax rate. 

In any case, consult your mortgage and a tax advisor before implementing such a plan.

TIP: You can also do more complex swaps. Gifting your partner the home or your 50% share in it. According to § 13 Absatz 1 Nummer 4a ErbStG, gifts inter vivos are tax-exempt if one spouse transfers ownership or co-ownership of a family home to the other spouse. "Family home" in this context refers to any property maintained and used for the owner's own residential purposes. After that, your partner could sell the home back to you at market price. This can help to even out the asset position with your partner.