Anyone who wants to sell a house or apartment has usually already dealt extensively with the most important additional selling costs for the agent, the advertisement and the energy certificate. The situation is often less clear when it comes to taxes. The topic of speculation tax in particular often causes uncertainty. In this post you will learn what you need to pay attention to.
The most important point – the speculation tax on real estate sales
When selling a house, taxation of the profit plays an important role. Section 23 of the Income Tax Act is relevant here, which states that profits from private sales transactions are generally taxable. This applies to land, houses and apartments as well as to other types of property.
An exception applies if there are more than 10 years between the purchase or construction of the property and its sale. The decisive factor is the date on which the purchase contract was notarized.
Tax exemption for personal use of the property
However, even if the regulation on the speculation period does not apply, the taxation of a sale profit can be omitted. This is the case if you use the property completely or partially for yourself. Partial personal use occurs if the property was used for personal residential purposes in the year of sale and in the two preceding calendar years. This also applies to partial calendar years. The regulation also affects second homes and exclusively self-used holiday apartments.
It is also advisable to take a closer look at the definition of the term “own residential purpose” as understood by the legislator. The requirement here is that the property was lived in by the seller himself or his family. From a tax perspective, this includes children as long as their parents still receive child benefit. If other relatives use the property, the profit from the sale is taxed without restriction.
Another exception to the profit tax applies if the house is sold to a child or spouse.
Exception: If it is a matter of selling a property, personal use cannot generally be possible because an undeveloped property cannot be inhabited. Speculation tax applies here if the property is sold at a profit.
How much tax can you save when selling a property?
How high the tax and thus the possible savings are depends on the amount of the increase in value and the associated sales profit as well as the personal income tax rate. Depending on the initial situation, a tax burden of up to 45 percent may apply. Other influencing factors are the purchase price at the time as well as the sales and acquisition costs.
If you want to calculate the speculation tax for a specific case, you can use one of the many calculators available online. Let's take as an example a property that was sold for €280,000 and where the sales costs are €10,000, the acquisition costs are €230,000 and the personal tax rate is 40%. The following calculation applies here:
- Taxable profit = €280,000 – €10,000 – €230,000 = 40.000.– €
- 40.000.– € * 0,4 = 16.000.– €
- In this example, the tax to be paid and therefore the possible savings is €16,000. This makes it clear that, through optimized tax structuring, considerable amounts can be saved.
What about commercial real estate trading?
The example was a private house sale. This characteristic no longer applies if you sell properties regularly or three or more properties within five years. In these cases, the provisions of commercial real estate trading are relevant (Section 15 EstG). If you exceed the three-property limit, the income is also subject to trade tax. In addition, there may be other obligations such as bookkeeping and accounting.
However, there are exceptions to the validity of the three-object limit. These are in detail:
- Properties with a holding period of more than ten years
- Properties that have been lived in for more than five years
- Inherited real estate
The intention to make a profit also plays a role, which is why the tax office does not classify donations as sales. This also applies to partial-payment sales, where, for example, a house is sold to relatives well below its market value.
But there are also exceptions in the other direction. If there is a clear intention to make a profit in a real estate transaction, even two sales within five years can be classified as commercial real estate transactions.
Note: If the property does not belong to private assets but to business assets, the sales profits are counted as taxable corporate profits.
How are losses when selling real estate treated for tax purposes?
If losses arise from a property sale, these can be offset according to Section 23 of the Income Tax Act up to a maximum of “the amount of profit that the taxpayer made from private sales transactions in the same calendar year”. Losses from private sales transactions cannot be offset against other types of income. In relation to the sale of real estate, this means that losses can only be claimed if the profit was made from a similar private sale transaction and reduces the tax burden from this profit.
The tax treatment of inherited real estate
If you inherit a property, you take over the speculation period from the testator. For example, if a rented property was owned by the testator for over 10 years, you do not have to pay speculation tax. This also applies if the testator has used the property himself since it was purchased or completed or in the year of inheritance and in the last two calendar years before that. Who one Inherit property If you would like to do so, you should get detailed information in advance.
Note: Inherited real estate is not counted towards the three-property limit for commercial real estate trading.
Conclusion – Is it worth selling a house despite taxation?
The answer to the question of whether selling a house is worthwhile always has to be found individually and depends on your personal situation. Current market events and the dynamics of property price development also play a central role. If you are thinking about selling, you should always seek advice from an experienced broker first.
Would you like to sell your property? We would be happy to advise you.
