Tax
Tax guidance for property owners
Speculation period for Berlin property 2022: selling tax free
Selling a property in Berlin at a profit usually triggers income tax. But there are exceptions. We explain the speculation period and how owners and investors can legally reduce their tax burden.
Peter Guthmann
Anyone who sells a property in Berlin at a profit must pay income tax on that gain under section 22 no. 2 of the German Income Tax Act (EStG). The tax rate depends on personal income tax brackets. Given the price increases Berlin has seen in recent years, the amounts involved can quickly reach five figures. But the law provides exceptions.
The 10 year holding period
The key exception is the speculation period of ten years (section 23 para. 1 EStG). If more than ten years pass between purchase and sale, the entire profit is tax free. The period is calculated to the exact day, from the date of notarisation of the purchase contract to the date of notarisation of the sale. When the building was constructed or completed is irrelevant.
The capital gain is calculated as the sale price minus the purchase price and transaction costs (such as broker fees). Previously used depreciation is added back. If a loss results, no tax is due. However, such losses can only be offset against other private disposal transactions, not against regular income.
Tax free sale through owner occupation
A tax free sale is also possible before the ten years are up, if the property was used for own residential purposes in the year of sale and the two preceding calendar years. The key word is "calendar year": it is sufficient to move in at the end of the first year, live there for the entire second year and sell at the beginning of the third year. A full 36 months of owner occupation is not required.
Owner occupation means you live there yourself. Letting the property to others, even if they use it as their home, does not count.
Two special cases owners should be aware of
The tax exemption after the speculation period applies only to property held as a private asset. If the property is part of a business, the exemption does not apply.
Additionally, sellers who are not exclusively tax resident in Germany should check the tax consequences in their home country. The German tax exemption after the holding period does not automatically apply abroad. A tax adviser can clarify the details for individual cases.
Anyone looking to sell their property in Berlin should consider the market development of recent years and carefully plan the timing of their sale in relation to the speculation period. The difference between a tax free and a taxable gain can be substantial.