Taxes when selling a house - how to sell tax-free

Taxes when selling a house: the most important facts in brief

• Depending on the type of use, time of sale and ownership, different types of tax are incurred when selling a house, for example speculation tax, income tax, inheritance tax or gift tax.

• As a rule, no income tax is due on the sale of owner-occupied property.

• No tax is due on the sale of (previously) rented property if it has been in the owner's possession for at least 10 years.

• In the case of inherited real estate, the period of ownership of the real estate by the deceased is also taken into account.

What taxes are due on the sale of a house?

Whether taxes are due on the sale of a house depends on many different factors. For example, it plays a role here whether the property is used or rented out by the owner, how long the property has been privately owned or whether it is an inheritance. Whether levies such as income tax, speculation tax or an early repayment penalty apply therefore varies from property to property. In the following, we therefore explain when no taxes are due on the sale of real estate.

When is the sale of a house tax-free?

As described above, the tax liability depends on the type of use of the property and how long it has been in the owner's possession. The following list shows under which circumstances no tax is payable on the sale of a property.

Owner-occupied property: The sale of a property that the owner has occupied himself is usually tax-free. The speculation period of 10 years, within which taxes would normally be due on the sale of a house, does not apply to owner-occupied property. For this to be the case, however, the owner must have used the house for himself at least in the year of the sale and the two preceding years. Otherwise, taxes will also be due on the sale of an owner-occupied property.

Property used by a third party (rental): The situation is different in the case of a property used by a third party, such as in the case of a Private rental the case: In this case the tax-free sale of the property is in principle, the tax-free sale of the property is only possible if the house or condominium has been in the owner's possession for at least 10 years. If the sale takes place before the expiry of this speculation period, a speculation tax is incurred on the sales profit.

Inherited property: If the house was acquired through an inheritance, this does not fundamentally change the above-mentioned regulations for self-use or third-party use. An inherited residential property can also be sold without income tax, provided it was and is used by the owners themselves. And in the same way, the speculation period of ten years applies to properties used by third parties in the case of renting. However, the period during which the property was already in the possession of the testator is also taken into account.

To illustrate this, here is an example: A father bequeaths a property to his daughter which he, as owner, has already been renting out for 7 years. Then the daughter could sell this residential property after only 3 years without speculation tax being levied. The ownership, its duration and, above all, the type of use of the property should therefore be carefully checked before each house sale in order to be able to save tax.

What is a tax-free gift or inheritance of a property?

Gift tax: The gift of an owner-occupied property between spouses is tax-privileged. This is because the so-called family home rule applies here, provided that the house represents the centre of family life. If this condition is met, the Donation of your property from one partner to the other during his or her lifetime, regardless of the property valuation Property valuation tax-free. However, this regulation does not apply to holiday or second properties. However, there is a tax allowance of 500,000 euros for spouses, which can be claimed every ten years. If the market value of the donated property does not exceed these 500,000 euros, the transfer is exempt from gift tax. In the case of a gift from parents to their children, an allowance of 400,000 euros applies, which can also be claimed every 10 years.

Inheritance tax: Inheritance tax can also be saved on the transfer of a property between spouses under certain circumstances. However, as already described above, a holding period of 10 years after the inheritance applies here - the heir must therefore use the house himself for another ten years. If he does not do so, inheritance tax becomes due retroactively. Another special feature concerns the inheritance of a property from parents to their children: In addition to the ten-year speculation period, the tax advantage only applies if the living space of the property does not exceed 200 square metres.

To illustrate this, here is an example: A son inherits from his deceased father a single-family house with 400 square metres of living space and a market value of 900,000 euros. After the inheritance, the son continues to live in the property for another 10 years and then wants to sell the property. Due to the living space, only 50 % of the house is tax-exempt - i.e. 450,000 euros. For the remaining 450,000 euros that the property is worth, the son can now apply the statutory tax-free amount - for inheritances from parents to their children this is 400,000 euros. The son would therefore have to pay tax on 50,000 euros.

Summary: Selling tax-free

The following list shows you in which cases none of the respective taxes apply:

Income tax does not apply to:

- owner-occupied real estate that has been lived in for 3 years.

- rented properties that have been privately owned for more than 10 years.

- inherited real estate that has been privately owned by the testator for more than 10 years.

Gift tax does not apply in the case of:

- Transfer of owner-occupied real estate to the spouse/registered civil partner.

- Compliance with the tax-free amount for married persons (real estate ≠ family home): 500,000 euros every 10 years.

- Compliance with the tax-free amount for gifts from parents to children: 400,000 euros every 10 years.

Inheritance tax not applicable in the case of:

- Ownership of owner-occupied property 10 years after inheritance.

General rule: Before selling any house, ownership and type of use of the property must be clarified in detail in order to take advantage of a possible exemption from tax. Our experienced real estate agents will be happy to advise you in this regard. We look forward to your contact request!