When selling a property, in addition to the property transfer tax and other costs (which a separate article will cover), you should also consider potential personal tax exposure. Otherwise unexpectedly high tax payments can arise quickly. As a rule, the sale of real estate is subject to tax. The capital gain is treated as other income under Section 22 No. 2 of the German Income Tax Act (EStG) and taxed at the personal income tax rate.
Calculation of the capital gain
The capital gain is calculated as the sale price minus the purchase price (Section 23 (3) EStG). Transaction-related expenses such as the broker's commission can be deducted. Depreciation claimed in the past is added back to the gain. If this calculation results in a loss, no tax is payable. However, such a loss cannot be offset against regular income; it can only be offset against other private sales transactions under Section 23 EStG. Offsetting is possible against further gains from real estate transactions, but also against gains from cryptocurrency trading, for example.
The ten-year period
There is an exception for gains from property sales that, under certain conditions, makes them tax free. This is the so-called speculation period. The idea is that if no speculation on short-term gains is involved, the profits should be tax free. The simplest way to qualify is for at least ten years to pass between the purchase and the sale of the property (Section 23 (1) EStG). The ten-year period is calculated to the day and generally starts with the notarized purchase contract. For tax purposes, only the property purchase counts; later construction or completion of buildings is irrelevant. The end of the period is likewise determined by the notarized sale contract.
Exception for own use
Alternatively, a sale before the end of the ten-year period can also be tax free. For that, the property must be used for the owner's own residential purposes in the year of sale and in the two preceding years. Own residential purposes means living there yourself, not renting it out to others who live there. Despite how it may sound, the rule does not require three full years of own use. Instead, it relies on use across consecutive calendar years. It is enough to move in at the end of the first year, live there for the full second year and then sell tax free at the start of the third year.
Transfer in the case of divorce
In the case of separation or divorce, a joint owner's share in the family home is often transferred to the spouse staying behind. In its decision of 14 February 2023 (case ref. IX R 11/21), the Federal Fiscal Court (Bundesfinanzhof) held that such a transfer constitutes a taxable disposal where the transferring spouse no longer uses their share for own residential purposes. If the ex-partner and joint children remain in the property, the own-use exemption falls away for the spouse who has moved out. The court confirmed this applies even where the transfer occurs under the threat of a forced sale.
Partial-consideration transfer
For partial-consideration transfers (typically a gift with consideration below the market value), the Federal Fiscal Court ruled on 11 March 2025 (case ref. IX R 17/24) that the transaction must be split into a fully paid and a fully gratuitous part. The ratio is determined by the relationship between the consideration and the market value of the asset transferred. This split applies even where the agreed consideration is below the original acquisition cost.
Private assets and tax residency abroad
Important: this rule only applies if the property is held as a private asset. Properties held as business assets do not benefit from this exception.
If the seller is not exclusively tax resident in Germany, possible tax consequences in their home country should also be reviewed. The tax exemption after the speculation period only applies to German tax liability and not necessarily abroad.
Debate on abolishing the speculation period
SPD and Bündnis 90/Die Grünen have repeatedly called for abolishing the speculation period for non-owner-occupied properties. The coalition agreement between CDU/CSU and SPD of 9 April 2025 contains no such provision. As of May 2026, the ten-year rule therefore remains unchanged.
Sources
- Section 23 EStG: https://www.gesetze-im-internet.de/estg/__23.html
- Bundesfinanzhof, decision of 14 February 2023, case ref. IX R 11/21 (own use after separation)
- Bundesfinanzhof, decision of 11 March 2025, case ref. IX R 17/24 (partial-consideration transfer): https://www.bundesfinanzhof.de/en/entscheidungen/entscheidungen-online/decision-detail/STRE202510112/
- Coalition agreement of CDU/CSU and SPD, 9 April 2025
Read the other parts of this feature:
- Property purchase contracts in Germany. Part I: A secure process
- Property purchase contracts in Germany. Part II: Before the notary appointment
- Property purchase contracts in Germany. Part III: The right of first refusal
- Property purchase contracts in Germany. Part V: Costs of buying and selling property
Disclaimer
This article is provided for general information only. Guthmann is a real estate agency and does not provide legal or tax advice. The content here is not a substitute for individual advice from a lawyer, notary or tax advisor and is not a basis for specific disposal, transfer or tax decisions. We make no warranty and accept no liability for the accuracy, completeness or timeliness of the content. Statutes, administrative practice and case law are subject to change; in particular, the Bundesfinanzhof decisions cited here may be modified by subsequent case law or legislative correction. For all the details, a tax advisor or lawyer can provide binding guidance.
