What Is the Ehegattenschaukel?
The Ehegattenschaukel (spousal swing) is a tax-saving arrangement. In this, you sell your rental property to your partner/spouse.
Your partner restarts the property depreciation at the current (usually higher) market value. This reduces the taxable rental income.
After ten years, your partner can sell the property again to you tax-free. Hence, repeating the cycle.
The name is not an official tax term. It simply describes how the property “swings” back and forth between spouses.
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How does depreciating a property save taxes in Germany?
When you buy an investment property in Germany, you can depreciate the building (not the land) over its useful life. You can deduct depreciation (AfA — Absetzung für Abnutzung) from your rental income and other income each year.
This reduces your taxable income and, hence, your income tax.
How does Ehegattenschaukel work?
Let’s understand it with an example.
Suppose you owned an investment property for ten years. You bought it for €100,000. The property is now worth €200,000.
You sell the property to your spouse at the current market price of €200,000. Your spouse can now depreciate €200,000 instead of €100,000.
If the depreciation rate is 2%, your spouse can deduct €4,000 (2% of 200k) from their income, rather than €2,000 (2% of 100k).
The difference of €2,000 per year reduces your spouse’s taxable income. Moreover, if you file a joint tax return, this method reduces your family’s taxable income.
To take full advantage of this scheme, you can give your spouse a private loan to finance the purchase. Your spouse can also deduct the interest as a business expense. Hence, resulting in even more tax savings.
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NOTE: You pay the tax on the interest your spouse pays you. However, the interest you earn is treated as capital gains. This means you pay a flat 25% capital gains tax plus surcharge, which is usually lower than the personal tax rate of your spouse.
After another ten years, your spouse can sell the property back to you. This way, you can repeat the cycle.
What are the tax benefits of Ehegattenschaukel?
- No Grunderwerbsteuer. Under § 3 Nr. 4 GrEStG, transfers between spouses are exempt from property transfer tax. Depending on the federal state, this normally costs 3.5% to 6.5% of the purchase price.
- No Spekulationssteuer. Under § 23 EStG, you can sell a property tax-free after ten years.
- Higher depreciation. Each time the property changes hands, the buyer starts depreciating from the new, higher purchase price. The more the property has appreciated, the greater the benefit.
- Private loan. You can give your spouse a private loan. Your spouse can deduct the interest as a business expense. Suppose your spouse’s personal tax rate is 42%. In this case, they save 42% tax on each euro of interest. However, you pay only 25% + surcharge of tax per euro as interest income. This means the net savings for your family are (42% – (25% + surcharge)).
NOTE: You still have to pay the notar fees, which is 1% to 1.5% of the purchase price. This is a small amount compared to the potential tax savings.
What are the requirements to benefit from Ehegattenschaukel?
- The property must be owned by one spouse only. If you bought it together as a joint ownership (Bruchteilsgemeinschaft), it cannot be “swung.” This is a common issue for couples who bought their rental property together.
- The sale must be at market price. You cannot give your spouse a discount. The tax office will check whether the price corresponds to what a third-party buyer would have paid. A valuation report is recommended.
- The transaction must be notarized. A proper purchase contract (Kaufvertrag) drawn up and certified by a notary is required. Notary costs are typically around 1.5% of the purchase price. You can deduct this as acquisition costs.
- The ten-year holding period must be respected. If you sell before ten years, you must pay capital gains tax on the profits.
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What are the risks when applying Ehegattenschaukel?
- Divorce risk. After the sale, only one spouse is the legal owner. If the marriage ends, the other spouse has no automatic claim on the property. Couples who use this strategy with multiple properties often structure it so each holds different properties, reducing exposure.
- Risk of a sham transaction. The tax office can challenge the sale if it doesn’t look genuine. Both the transfer of ownership and the actual payment of the purchase price must be properly documented. Circular arrangements in which the seller immediately refunds the money to the buyer are a red flag.
- Tax abuse under § 42 AO. The German tax code prohibits using legal arrangements to achieve a tax result that the law did not intend. As long as the transaction is genuine, commercially reasonable, and properly documented, the Ehegattenschaukel is widely accepted by the courts and tax authorities.
