Partial-consideration transfer of real estate – a tax trap when making a gift?

When transferring a house or apartment within the family, many property owners immediately think of a tax-free gift. The thought is obvious: “I’m giving the property to my child—why would the tax office have a problem with that?” But it’s not quite that simple. Because if debts are assumed or loans are involved, it can quickly become a taxable sale—even if no money changes hands. In practice, this carries significant tax risks.

Why the transfer of real estate is not always tax-free

Real estate is at the heart of many family asset transfers—whether for retirement planning, early succession planning, or to take advantage of gift tax exemptions. What many people don’t realize, however, is that even minor planning errors can result in income tax liability. This is particularly true in cases where:

• the transferred real estate is still encumbered by a loan,
• debts are assumed by the recipient,
• the property is not used by the recipient but is transferred to relatives.

Experts refer to this as a “partially compensated transfer”—that is, a hybrid of a gift and a sale. And it is precisely in this gray area that most tax pitfalls lurk.

Recent rulings by the Federal Fiscal Court (BFH) show: Caution is advised with family arrangements

The Federal Fiscal Court (BFH) has made it clear in several recent decisions that the tax office scrutinizes transfers for partial consideration closely:

• Ruling of March 11, 2025 (IX R 17/24):
  If a property is transferred with an outstanding loan, the transaction is considered a transfer for consideration. Even if the loan is less than the original purchase price, the portion of the debt assumed is treated as a purchase price—and can result in a taxable capital gain if the property has not been owned for at least ten years.
• Judgment of December 3, 2024 (IX R 2/24):
  If a property is transferred free of charge but the loan remains with the previous owner, the latter loses the right to deduct interest on the transferred portion. This means that even without taxation of the gain, the tax burden may increase.
• Judgment of November 14, 2023 (IX R 13/23):
  Even if a property is transferred to the mother-in-law for use free of charge, this is not sufficient for tax exemption based on owner-occupancy. Only if the donor themselves or eligible children reside there will the gain remain tax-free upon subsequent sale.

These rulings make it clear: The desire for a simple and tax-free gift can quickly lead to a tax planning error—sometimes with significant financial consequences.

What to Consider When Transferring Property

To ensure a transfer does not become a tax trap, the following points should be reviewed early on:

1. Do not make blanket assumptions

“Everything within the family is tax-free, isn’t it?”—this statement regularly leads to misjudgments. Whether a transfer is taxable always depends on the specific individual case.

2. Loan? Check for consideration!

If an existing loan is assumed by the transferee, this may constitute a transaction for consideration. The resulting capital gain is taxable if the property is transferred within ten years of acquisition.

3. Classify interest correctly

If the loan remains with the donor, the donor loses the interest deduction for the transferred portion. The interest is then no longer related to the income generated—a detail that is often overlooked.

4. Caution regarding use by relatives

Only personal use or use by children eligible for child support protects against tax liability upon sale. If used by parents, in-laws, or other relatives, taxation may apply despite purported “personal use.”

5. A holistic view is crucial

Optimal planning takes into account both income tax and gift tax—while also considering potential real estate transfer tax implications. Chain gifts or intermediate acquisitions can be useful tools in this context—provided they are implemented correctly from a legal standpoint.

Conclusion

The transfer of real estate within the family is more complex from a tax perspective than is often assumed. Those who focus solely on gift tax exemptions can easily overlook income tax pitfalls. Therefore, comprehensive tax and legal advice is recommended even before implementation. Our tax advisors in Düsseldorf and Oberhausen are here to support you with their experience and foresight—ensuring your real estate transfer is legally sound, tax-optimized, and forward-thinking.