When selling real estate, in addition to the land transfer tax and other costs, which will be discussed in more detail in a future article, the possible resulting personal tax burden must be taken into account. Otherwise, unexpectedly high tax payments can arise quickly. In principle, the sale of real estate is subject to tax. The capital gain is taxed as other income according to § 22 No. 2 of the German Income Tax Act (EStG) at the income tax rate.
Basis for taxes
The capital gain is initially calculated on the basis of the sales price less the purchase price, Sec. 23 (3) EStG. Furthermore, the income-related expenses incurred for the transaction, such as the broker's commission, can be deducted. Depreciation options used in the past are added to the profit.
If a loss is incurred after this calculation, no tax is of course due. However, such a loss cannot be offset against normal income, but only against other private sales transactions in accordance with Section 23 EStG. It would be possible to offset it against other gains from real estate transactions, but also against gains from trading in cryptocurrencies, for example.
There is an exception for gains from real estate sales, which makes them tax-free under certain circumstances. This is the so-called speculation period. If there is no speculation on "short-term" profits, the profits should be tax-free. The simplest requirement for this is that there must be at least ten years between the purchase and sale of the property, Section 23 (1) EStG. The ten-year period is calculated to the day and generally begins with the conclusion of the notarized purchase agreement. In this context, only the purchase of the land is relevant for the tax; any development or completion of possible buildings that may not take place until later is disregarded. The conclusion of the notarized sale is also decisive for the expiry of the time limit.
Alternatively, the sale can also take place before the expiry of the ten-year period in another case. For this purpose, the property must be used for own residential purposes in the year of the sale and in the two preceding years. Own residential purposes means self-use as a dwelling, not renting it out to others who then live there. It may sound different, but the regulation does not require that the property be used for own residential purposes for at least three years. Rather, the regulation focuses on use in consecutive calendar years. It is sufficient to move in at the end of the first year, live there completely for the second year, and then make a tax-free sale at the beginning of the third year.
Don't forget: We are talking about privates
Important: This rule only applies if the property is held as private assets. Real estate held as business assets does not benefit from this exception.
If the seller is not exclusively resident in Germany for tax purposes, possible tax consequences should also be examined in the home country. The tax exemption after expiration of the speculation period only applies to the German tax liability and not necessarily abroad.
A competent tax advisor can provide more detailed information on all details.