Questions to be answered for a proper assessment
- Who owns the property?
- How much time passed since the signature of the notarial act?
- How was the property used? Was it used by the (privat) owner or somebody depending on him/her financially (e.g. kids)?
- Did the property generate rental income in the last 10 years?
- Has the owner been taxed because of rental income of this property in the last 10 years?
If you can answer those questions, you can proceed and talk to your tax advisor.
More in depth explanation
The 10 years period
The speculation period for real estate sales in Germany is 10 years. This means that the possible profit from the sale of a house or an apartment is not taxable if there are at least 10 years between the acquisition or construction of the property and its sale. Typically the qualifying date is the date of the notarial signature of the purchase price. The 10 years period is only applicable if the property is owned by a private person or by a tax transparent structure/company (e.g. a Kommanditgesellschaft “KG”) and when the property was rented out. In reverse if the property is owned 10 years and owned by an individual, it is highly likely that the profits are free of tax. (as of the legal situation at 1th of March 2022 in Germany).
Exceptions to the 10-year limit
If the property is used by the owner or people directly depending on him financially, like partner, kids. The 10 years period does not apply, as the owner did not have the intend to generate income out of the property. This implicates that no costs are deducted with the tax office and no income is declared.
Definition of Taxable Profit and Book Value and Costs
The taxable profit is the difference between the sales price minus the book value and the expenses that relate to the sale (e.g. legal costs, travel cost, notary costs).
The book value is the acquisition costs reduced by the accumulated depreciation.
The acquisition costs includes the sales price, as well as all expenses that are connected with the purchase of the property (e.g. legal costs, travel cost, notary costs).
Taxation of Profits or Losses of a Property Deal
The profit/loss deriving from the sale of the apartment is not subject to a separate capital gains tax in Germany.
Instead the profit/loss is subject to income tax and it will be added to the assessment basis that includes your further German income (e.g. the profit/loss from the letting of the apartment).
In addition, the profit from the sale can be settled with the loss brought forward from previous years.
Automatic Information Exchange with the Tax Office
After the sales contract was set up and signed the tax office will automatically receive a notification from the notary as well as a copy of the sales contract.
Income Tax Prepayment
Based on the agreed sales price the tax office may assess an income tax prepayment for the tax year in which you have sold the German property. Alternatively, the tax office may withhold money from the agreed sales price that will be considered as a prepayment. In both cases the prepayment will be settled with the actual income tax liability after you will have submitted the tax return.
Anticipated Inheritance or Gift (German Inheritance Tax)
If you intend to give away or sell your German property to a family member. Both a sale or a donation could be suitable, depending on your will. Both has different tax consequences.
If you need further assistance please call your German tax advisor.
No Legal Advise
We can not advise you legally beyond the general information given above.