A property community is a special form of ownership in which several people share a property andJointly finance the investment. Joint ownership entails both rights and responsibilities for the individual owners. In this article, we will explore the most important aspects of joint ownership.
Definition: What is a property community?Link to this section
Joint tenancy refers to a form of ownership in which several people jointly own a piece of land or real estate. It offers several people the opportunity to invest in land or real estate together and share both the associated benefits and responsibilities.
This allows risks to be minimized and resources to be pooled, making joint ownership an attractive option for many investors. The distribution of ownership shares is precisely defined, so each co-owner knows their specific share of the total property.
Financial aspects of the community:An important component of a property partnership is the proportional distribution of income from leasing or renting among the owners. To ensure this distribution is transparent and legally secure, a tax assessment notice from the tax office documents the precise distribution of income among the co-owners.Tax treatment of the community:In terms of tax treatment, joint ownership offers the advantage that co-owners can declare their individual share in their tax returns. Taxation is based on the individual circumstances and tax bracket of each owner, allowing for flexible and fair tax treatment.Rights and obligations of the community:Co-owners of a property community have certain rights and responsibilities associated with this form of ownership, such as maintenance. In addition, specific regulations apply to the management and use of the shared property, which must be observed by all involved to ensure the smooth functioning of the community.
Property community, joint ownership community, joint ownership community and homeowners association: the differencesLink to this section
There are two main forms of property ownership: joint ownership and joint tenancy. The key legal difference between them lies in the way the owners can dispose of the property.
The joint tenancy:In a joint ownership, each co-owner holds a specific share of the property, which they can freely dispose of. They can sell or encumber their share without requiring the consent of the other owners. Joint ownership is regulated by Sections 741 et seq. of the German Civil Code (BGB).The joint ownership:In contrast, a joint tenancy is characterized by a close bond between the co-owners. The property belongs to all owners jointly, and no one can freely dispose of their share. Dispositions of the property can only be made jointly by all owners. Joint tenancy is regulated by §§ 2032 et seq. of the German Civil Code (BGB) (community of heirs), §§ 718 et seq. of the German Civil Code (civil law partnership), and other laws.The homeowners association (WEG):Regarding the Homeowners association (WEG) It should be noted that this is not a property community in the true sense of the word. Each apartment owner is the sole owner of an apartment and only has a co-ownership share in the joint property of the property. The condominium association serves to manage the common property and regulate the relationships between the condominium owners.
How is a property community established?Link to this section
Establishing a property owners' association is an important step that can be relevant in various life situations. Whether you are purchasing a property jointly with others, are part of an existing homeowners' association (WEG), inheriting a property, purchasing a property jointly with your spouse, or legally forming such an association for other reasons – it is important to understand the various aspects and constellations involved.
If you purchase a property with several people, a joint ownership is automatically created. This often occurs before construction or other use begins and serves to share the financial burden or to jointly purchase larger properties.
In a condominium association, each member has a share of the common property, which usually includes the land. This is typical for terraced houses, condominiums, and similar properties.
If a testator leaves a property to several heirs, these automatically form a community of heirs, which also relates to the property.
Even when spouses jointly purchase real estate, including condominiums, a joint tenancy is created. In the event of a divorce, registration in the land register is crucial, as it governs the ownership relationships and thus the claims of each party. For spouses, the regulations may vary depending on whether a prenuptial agreement exists.
The legal establishment of a property community generally takes place before a notary through the signing of the purchase contract and the registration of the owners and their shares in the property in the land register.
The advantages of a property communityLink to this section
The formation of a property community, especially in the form of a joint ownership, can have various advantages:
Pooling of capital:By joining forces with several people, larger financial resources can be raised to jointly purchase or develop a piece of land.Risk sharing:The risk associated with the acquisition and use of a property is spread among several people.Flexibility:The joint ownership allows for flexible use and management of the property, as each co-owner can freely dispose of his/her share.Simple discussion:The joint ownership can be dissolved relatively easily by selling the property and dividing the proceeds among the co-owners.
However, it is important to note that forming a property community can also involve risks. Disputes between owners regarding the use and management of the property can lead to conflicts. We advise you to reach a clear agreement regarding the Rights and obligations of owners to meet.
The tax office requires two declarations from co-owners: Why?Link to this section
If you are the owner of a property community, there are a few special features to consider when filing your tax return, as the tax office requires two tax returns.
First, an assessment procedure is conducted for the entire property community. Imagine that the tax office considers the community to be a single owner. Therefore, the total rental and leasing income is determined as if it were a single individual.
In the next step, the assessment basis is determined uniformly for all co-owners. This means that the basis for calculating the tax burden is the same for everyone involved. The income is then distributed among the co-owners according to their share in the community.
The third step is your individual income tax return. Here, you enter the rental income determined in your assessment notice. The actual taxation of your rental income is based on this information.
TipIf you haven't received the assessment notice when you prepare your income tax return, you can make a provisional estimate of your income. Don't worry, the tax office will automatically correct the information as soon as the assessment notice is received.
This process offers you several advantages:
Equal treatment:It ensures equal tax treatment of all ownersFair taxation:Taxation is as if you were the sole owner, which enables fair and reasonable taxationTransparency:It enables a fair and transparent distribution of income so that each owner can tax his/her share
Through this procedure, the tax office ensures that the taxation of rental income from a property community is both fair and transparent.
What you should consider when renting in a property communityLink to this section
As an owner in a property association who rents or leases shared property, you earn rental and leasing income similar to that of a sole owner. This rental income is taxable.
Important points for you at a glance:
Tax liability: Your rental income is generally subject to tax.Advertising expenses: Costs incurred in connection with renting (e.g., interest on debt, property tax, building insurance, maintenance costs) can be deducted from your income as business expenses, thus reducing your tax burden. Learn more about the Cost distribution according to the new WEG law .Recognition of incomeFor tax purposes, income from renting and leasing is only recognized if the following conditions are met:Lens rental: There must actually be a rental, i.e. the transfer of residential property to a third party in return for payment.Subjective intention to make a profit: You must have the intention of making a profit.
Please also note the following points:
Calculate income and expenses:First, calculate the total income and expenses (advertising costs) incurred by the entire community. This is an important step in laying the foundation for the next steps.Declaration of determination:Enter the previously calculated information into the joint tax assessment declaration. The declaration serves to declare the joint tax association's income and expenses to the tax office.Note exceptions:There are certain income and expenses that do not belong in the property association's assessment declaration. These include personal income, such as property management fees, and personal business expenses, such as interest on financing. These are accounted for separately as special income and special business expenses. The same applies to depreciation claims for different purposes.
Leaving a property community: A complex process with many facetsLink to this section
The desire to withdraw from a joint ownership property can arise for a variety of reasons, such as disagreements among the owners, financial circumstances, or personal changes. Withdrawing from a joint ownership property is often complex and requires careful planning and consideration of numerous aspects, which we would be happy to explain to you.
Would you like to withdraw from a property partnership? Consider these points:
Consent and contract adjustments:First, obtain consent from all parties involved. Carefully review your existing contracts and make any necessary adjustments. Don't forget to evaluate potential legal consequences.Clarify financial aspects:Be sure to clarify all outstanding financial obligations. Consider maintenance costs, repair costs, and ongoing expenses.Be proactive:Conduct a forward-looking analysis of the financial impact to avoid surprises later.Organize the transfer of ownership professionally:Carefully plan the transfer of your rights and responsibilities to the remaining members. Consider renegotiating existing agreements and drafting any necessary transitional contracts.Do not underestimate legal aspects:Prepare for potential legal issues: clarify your ownership interests, identify potential liabilities, and consult a legal expert if necessary.Redistribution by the community:The redistribution of ownership shares is the responsibility of the remaining community, not you as the departing member. The property community must redistribute the shares in the shared property. This redistribution may be stipulated by existing contractual arrangements or require a new agreement between the remaining members. You, as the departing member, are no longer directly involved in this process.
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