The most important facts in brief:

• When selling real estate privately, you should observe the speculation period of ten years in order to avoid the due date of speculation tax.

• Speculation tax does not apply to owner-occupied real estate, provided it has been occupied by the owner for the last three years.

• The amount of speculation tax on the sale of a house can be reduced by offsetting the ancillary sales costs against the capital gain.

• When a property is inherited, the speculation period passes from the testator to the heir.

• The sale of three or more properties within a period of five years defines commercial real estate trading, which is accompanied by trade and sales tax.

When is the sale of a house or flat tax-free?

Taxes may be incurred on the sale of a house or flat as well as on the sale of land. According to the legislator, a so-called speculation period of ten years applies. This means that you have to pay speculation tax on the profit from the sale of the property. If the property has been in your possession for at least ten years, you do not have to pay tax. If you have owned the house or flat for less than ten years, it must have been lived in by yourself or your children since it was purchased or built so that you do not have to pay tax on the gain.

If you have rented out your house or flat in the past, a minimum period of ownership of ten years is required for speculation tax not to apply to the gain. If this is not the case, the owner must occupy the property for at least the current year and the two years preceding the sale.

What is the tax period for the sale of real estate?

The tax period refers to the ten years of possession prior to the sale of a property so that no speculation tax is due on the gain. According to § 23 EStG, the date of notarisation of sales contracts is decisive. If the property is used for own residential purposes, this tax period does not apply.

The regulation also applies to owner-occupied second homes, holiday properties and commenced calendar years. For example, if you bought a house in 2012 and have been using it for your own purposes since December 2014, the sale is tax-free from January 2016. If you sell your house within the family to your spouse or children, the real estate transfer tax does not apply.

How high is the speculation tax?

The amount of speculation tax on the sale of a house or flat depends on the increase in value or the resulting profit of the sale transaction. Your individual income tax rate also influences the calculation. In the case of rented properties, depreciation for wear and tear was usually claimed from the tax office in the past, which reduces the acquisition costs of your house. They amount to 2.5 per cent for houses built before 1925. Properties built more recently are depreciated at 2.5 per cent per year.

The value of a property is 320,000 euros. It is reduced by disposal costs of 10,000 euros (painting work) and the acquisition price (without depreciation) of 250,000 euros. The taxable profit is thus 60,000 euros. At a personal tax rate of 40 per cent, 24,000 euros speculation tax is thus incurred.

[320.000 - (250 000 + 10 000)] x 40 % =

[320.000 - 260 000] x 40 % =

60.000 x 40 % =

24

The acquisition costs include all expenses such as ancillary purchase costs: notary fees, brokerage, court costs and land transfer tax.

Tax-free sale of owner-occupied residential property

The sale of owner-occupied residential property is tax-free. If you wish to sell a rented property without paying speculation tax, you should allow the ten-year speculation period to elapse in order to realise a tax-free profit on the sale transaction. If this is not possible, declare own use. In this way, you can use your house in the calendar year of the sale as well as in the two preceding years in order to sell the property tax-free afterwards.

Commercial sale of real estate

According to the law, the sale of real estate is automatically considered a commercial sale if you sell three properties (or more) within five years. In this case, § 15 EStG applies. Inherited houses do not fall under commercial property trading.

This is also referred to as the 3-property limit. The 3-property limit is a regulation in the Income Tax Act (EStG) that states that the sale of real estate is considered commercial real estate trading if three or more properties are sold within five years. In this case, § 15 EStG applies. It is important to note that this regulation only applies to the sale of real estate that has not been owner-occupied. If a property was owner-occupied, § 23 EStG applies.

It should also be noted that inherited houses do not fall under commercial property trading and are therefore exempt from this regulation. This means that the sale of inherited real estate, regardless of the number of properties sold, is not considered commercial real estate trading and therefore does not fall under Section 15 EStG.

It is important to keep the 3-property limit in mind, as the sale of real estate that qualifies as commercial real estate trading has different tax consequences than the sale of owner-occupied housing or inherited real estate. If you plan to sell more than three properties within five years, you should consult a tax advisor early on to ensure that you meet the tax requirements and minimise possible risks.

Tax treatment in the case of inheritance or gift of real estate

When a flat or a house is inherited, the speculation period passes from the deceased to the heirs. If the flat or house has been in the deceased's possession for more than ten years, no speculation tax is due if you, as the heir, sell the property (not even in the case of rented property). If the house has been used by the owner since its acquisition OR in the year of inheritance as well as the two years before, no speculation tax is due for you either. This does not affect the due date for inheritance tax.

Taxes on gifts of real estate depend on the respective tax-free amount. By giving away your property in instalments every ten years, you can avoid gift tax. For gifts to children, the tax-free amount is 400,000 euros per parent and child. Thus, a married couple could give away a property worth 800,000 euros to a child tax-free.

Good to know:

• Above the exemption limit, the amount of tax is between seven and 30 per cent.

• In the case of gifts to siblings, the exemption limit is only 20,000 euros and is taxed at 15 to 43 percent.

• In the case of a marriage, the exemption limit is 500,000 euros.

• With a subsequent change of tax class, you thus pay between seven and 30 percent instead of 30 to 50 percent.

Chain gifts (the property is given away as a gift and then passed on to a third party) are permissible according to the Federal Fiscal Court in order to make the best use of tax-free allowances. The prerequisites for legality are:

• There is no legal obligation on the part of the original owner to make the gift.

• Different gifts may not be made on the same day.

• Each gift must be notarised separately with a notary.

In the case of a gift to children, daughter-in-law or son-in-law, no real estate transfer tax is due. In the case of rented properties, ten percent of the market value is tax-free.

Taxes on the sale of land

The sale of land is a special case. Since it is an undeveloped plot of land, it cannot have previously been used as a residential property. Therefore, income tax is due on a profitable sale before the end of the speculation period.

Exceptions apply in the case of inherited land. With a property value of less than 75,000 euros, taxes of seven per cent apply in the most favourable case (tax class 1). By comparison, unrelated beneficiaries pay 30 per cent. Land with a value of up to 600,000 euros is taxed at between 15 and 30 per cent.

What happens in the case of losses

If you have incurred a loss through the sale of a flat or house, you can only claim this for tax purposes if you have made a profit through the sale of another property in the same calendar year. The loss can then be offset by setting it off against the profit of the other property transaction. Offsetting is only possible against the profit from a similar and private sale. This includes other real estate transactions or the sale of securities, but not wages or salaries.

Losses can also be carried back or forward. When carrying the loss back to the previous financial year, you can thus receive a tax refund.

Property sale - with or without an estate agent?

Selling real estate with an estate agent can be advantageous - despite additional costs; for example, if you want to reduce the capital gain from the transaction in favour of a lower tax burden. The costs for an estate agent amount to six to seven percent, which are usually shared equally by the buyer and the seller.

The advantages of a real estate agent:

• The expertise of a real estate agent enables sellers to achieve a higher purchase price overall.

• Sound knowledge of the market, marketing, valuation and tax treatment can add up to many thousands of euros on balance, which amortises the investment.

• In addition, the sale takes place in a shorter period of time with the help of an estate agent. This is particularly important in commercial property trading; for example, if interest on borrowed capital during the construction phase of a property to be built would reduce your expected profit.

• Finally, the sale of a flat or house through an estate agent offers comprehensive legal certainty with regard to the form of the sales contract.

When choosing an estate agent, you should make sure that he or she is from the region, communicates transparently and is easy to contact. You should not agree to advance payments of commission.

Taxes for the sale of real estate from business assets

When selling a property from the business assets of a company, the profit is taxable accordingly. It is part of the taxable business profits, which is why the seller is subject to at least trade tax on the profit, and possibly also speculation tax. If you only sell a property from the business assets, the latter does not apply.

If the sale is a commercial real estate transaction, the buyer must pay turnover tax at the rate of 19 percent on the entire purchase price (not only on the profit) (§ 15 EStG).

If a property is inherited from business assets, the tax treatment depends on the further use. If the real estate is released from the assets for non-business purposes, this constitutes a withdrawal. For tax purposes, this withdrawal profit is then offset against the profit of the donor. In the case of gifts, this is the release of a property from the business assets (§ 23 para. 1 sentence 2 EStG). This acquisition transaction is attributed to the donee and resets the speculation period to zero.

Is the sale of real estate worthwhile despite taxes?

Whether the sale of a flat or house is profitable despite taxes depends on the use of the property, the value and the tax treatment. These factors are very individual, which is why you should examine each case carefully. The current market situation as well as the economic development of the real estate market also influence whether the sale of real estate makes sense at the given time.

A free property valuation is the first important step in obtaining an overview of taxes to be paid and thus of the profitability. Try our free property value calculator to get an idea.

Especially in the case of private property sales among family members, gifting can be a sensible alternative to avoid inheritance tax. In addition, as a private owner with several properties, you should plan their sale carefully to avoid being treated as a commercial seller by the tax office.

How much tax do you have to pay when selling a house?

How much tax you have to pay when selling a flat or house depends on whether it is a private or commercial sale. These two examples of taxation on the sale of real estate are intended to make this clear:

Example 1

A private owner sells a house for 400,000 Euros, which she has owned for four years and does not live in herself. The original purchase price at the time was 250,000 euros, the selling costs 20,000 euros. The speculation tax on the profit of the sale is due, which amounts to 3.5 percent in Thuringia. The individual tax rate of the seller is 30 per cent.

[400.000 - (250.000 + 20.000)] x 3,5 % =

[400.000 - 270.000] x 3,5 % =

130 000 x 3,5 % =

39

On the purchase price of 400,000 euros, 39,000 euros speculation tax is due. To this must be added the real estate transfer tax: 400,000 x 6.5 % = 26,000 The land transfer tax thus amounts to 26,000 euros.

Example 2

In the case of the commercial sale of a property for 400,000 Euros with an original purchase price of 250,000 Euros and selling costs of 20,000 Euros, an additional 19% turnover tax is due on the profit of 130,000 Euros. For the calculation of the trade tax, an allowance of 24,500 Euros, a tax rate of 3.5 % and a municipal assessment rate of 200 % apply.

[400.000 - (250.000 + 20.000)] =

130.000 x 19 % =

24.7

The buyer of the property must pay 24,700 euros or VAT. The total purchase price is therefore 154,700 euros. For the business tax the following calculation results: (130,000 - 24,500) x 3.5 % x 200 % = 115,500 x 3.5 x 200= 8,085 The trade tax to be paid by the commercial seller amounts to 8,085 Euros.

Depending on the situation and the federal state, different requirements apply from the tax office, which is why each individual case should be examined carefully.