Marital Swing (Property Regime Swing) in Real Estate: Advantages, Disadvantages, and Risks
With the so-called “Ehegattenschaukel,” commonly referred to as the “marital swing” or “property regime swing,” a method of mutual buying and selling of rented properties between first-degree relatives, taxes can be saved by generating new depreciation potential at market value with each sale.
The “Ehegattenschaukel” is particularly suitable for first-degree and, in some cases, second-degree relatives who trust each other and own multiple properties. In this arrangement, each of the two involved parties usually holds about half of the total real estate portfolio.
First (direct) and second (collateral) line – With which relatives is the “Ehegattenschaukel” allowed?
The “swing” is possible among all direct relatives, i.e., first-degree relatives, such as between child and parents, between grandchild and grandparents, and between parents themselves.
Siblings are not direct-line relatives but belong to a collateral line. Therefore, the “Ehegattenschaukel” is not possible between siblings.
Utilizing Multiple Tax Advantages
The “Ehegattenschaukel” combines several tax and other financial benefits.
- There is usually no real estate agent involved between relatives, which saves brokerage fees of 2 to 8 percent. While this benefit is not exclusive to the “swing,” it is almost always applicable here.
- No real estate transfer tax is incurred, eliminating additional costs ranging from 3.5 to 6.5 percent, depending on the federal state.
- Even notary fees can be saved if the transactions are carried out within a civil law partnership (GbR). Since the GbR remains unchanged as the registered owner in the land register, there is no need to amend it. Instead of a land register entry, only the GbR contract is modified for each sale, eliminating the need for a notary. At times, one party holds 100 percent of the GbR shares while the other holds 0 percent, and then it reverses.
- New depreciation potential: Selling at the current market value creates new and higher depreciation volumes (“Absetzung für Abnutzung”), allowing the buyer to reduce their tax burden.
Requirements for the “Ehegattenschaukel”
To successfully apply the tax-saving method of the “Ehegattenschaukel,” the following conditions must be met.
- Buyer and seller must be directly related, such as grandchild, child, parent, or grandparent.
- Domestic property: The property must not be located abroad.
- Investment property instead of personal use: As with a standard real estate purchase, the property must be rented out to utilize depreciation benefits.
- Market-compliant conditions and process: The purchase price must not be exceptionally low, nor may the purchase price or parts of it be gifted. Otherwise, it would constitute a disguised gift.
Potential Disadvantages of the “Ehegattenschaukel” / Property Regime Swing
- Unequal distribution of real estate ownership in the event of an (unexpected) divorce: Ideally, multiple properties are “swung,” and each party (e.g., husband and wife) continuously holds half of the real estate portfolio.
- Non-recognition by tax authorities: If the purchase arrangements are not structured at market conditions, the tax office may reject the setup and demand repayment of tax benefits.