+49 (0)89 70065020
Speculation tax on real estate sales
Speculation tax on real estate sales
Anyone who wants to sell a property has a lot to think about. In the process, people often forget that the tax office also takes a close look at the sale of real estate. If applicable, the so-called „speculation tax“ must be paid. Depending on the property price and personal tax rate, this can become quite expensive – therefore it is worth doing so even before the Real Estate Sales to look closely. In the process, the amount of the speculation tax can be influenced if one proceeds cleverly.
Due date
Every real estate sale and purchase in Germany is notarized. The notary is obligated to send a copy of every purchase contract to the tax office. The tax authority checks whether it might be a speculative transaction and whether the profit is subject to tax.
The speculation tax in connection with real estate is regulated in Section 23 of the German Income Tax Act (EStG). The speculation tax is generally due when a private individual achieves „profits from private disposal transactions,“ such as through the sale of a piece of real estate. As is so often the case in tax law, one should pay attention to the details. This is because the taxation of profits from the sale of real estate only occurs if there is actually the intention to make a profit. In other words: When private individuals buy and sell real estate, the tax is only due if the intention to make a profit is the primary objective.
Against this background, the colloquial name for the tax is also fitting: the speculation tax applies when one speculates in real estate. There are clear and simple criteria defined by the legislature to identify an intent to make a profit or speculation. As soon as these criteria are met, the tax becomes due. The speculative gain is taxed at the individual income tax rate.
Contact us – we are always available
Tax liability on real estate speculation: What you should know about the 10-year holding period
The most important criterion regarding the speculation tax also includes holding period of a property, the so-called speculation period. The speculation period is therefore the timeframe during which the owner must keep the property so that the sale remains tax-free. In doing so, the legislature assumes that for very short timeframes, speculation and the intention to achieve a profit are the primary motives. In general, a property sale within the period of ten years after purchase is considered speculation, which means that speculation tax is due.
However, if you observe the 10-year holding period for buildings, land, and rights equivalent to real estate, you can save taxes. If, for example, the property was bought nine years ago, it may be advisable to wait a year before selling it so that the period is exceeded. In many cases, it can therefore make sense to postpone the sale a little longer and wait for the speculation period to expire.
No speculation tax on owner-occupied real estate
Many people invest in real estate in order to live in their own house or apartment. However, changed living circumstances, a separation, or a career change often make selling the property necessary. Of course, in these cases it would not be appropriate to assume speculation and subject the seller of the property to speculation tax.
Specifically, the law stipulates that no tax is to be paid on owner-occupied real estate – even if the speculation period has not been observed and less than ten years lie between purchase and sale. Thus, properties acquired for personal use are not restricted by any disposal period and can be sold tax-free at any time.
For real estate within the 10-year period were partly rented out and partly used personally, the following rule applies: sellers are exempt from speculative tax, if you have lived in the property yourself in the last three years before the sale. For real estate consisting of multiple residential units, one of which was owner-occupied, speculation tax is due only on the portion that was rented out to third parties. Owners who acquire real estate for rent or lease and hold it for less than ten years must pay taxes on capital gains from the sale.
Would you like to know the value of your property? Free and without obligation.
Would you like to know the current value of your property? You've come to the right place for informed value assessments. Call us: 089 70065020.
Our property valuation for you:
- A high-quality and comprehensive analysis of your property.
- Well-founded real estate valuation including market analysis.
- Ideal for owners, sellers, and buyers.
Amount of capital gains tax
The speculation tax is calculated from the amount of profit made from the sale of the real estate and the personal tax rate. Basically, the profit is calculated from the difference between the purchase price and the selling price. But beware: depreciation that was claimed for rented properties also increases the value of the property and must be taken into account when determining the speculation tax. In the case of listed historical buildings, special depreciation also applies.
Conversely, the capital gain – and thus the amount of speculative tax – can be reduced if modernizations and renovations are carried out before the property sale. The costs for this can be offset against the tax. This is certainly worthwhile, because in many cases, certain upgrades can also be used to increase the selling price at the same time.
Once the profit from the sale of real estate has been determined, that profit is taxed at the individual’s tax rate. For example: Someone who buys a property for 100,000 EUR and sells it for 120,000 EUR has realized a profit of 20,000 EUR, excluding depreciation and minor repairs. If the seller is subject to a personal tax rate of 40 %, 8,000 EUR in capital gains tax is therefore due.
Real estate agent fees lower the tax burden
By the way, whoever hires a broker, can deduct the resulting amount to reduce the profit from the sale of the property. The remaining incidental costs associated with the purchase and sale of a property also reduce the profit margin and thus the taxation. Furthermore, renovation and modernization costs can also reduce the tax burden since they are classified as income-related expenses. Unfortunately, interest and principal payments for the loan do not have a tax-reducing effect. Please feel free to contact us when selling your property and benefit from our practical knowledge.
FAQ – Frequently asked questions by property owners
Has the legislature granted an allowance when levying the speculation tax?
Answer: In principle, there is a total exemption limit of 600 EUR per year for profits from private sales transactions. If sales profits are below this limit, they are not taxed. If the speculative profit exceeds this threshold by just one cent, the entire amount must be taxed. The tax-free allowance applies per person. Ultimately, this means that the capital gain upon sale must not be too high.
From what point on is the speculation tax calculated?
Answer: Crucial for the calculation of the deadline is the time of purchase and not the transfer of ownership in the land register.
Share
Download as PDF
Print page
