Sell property taxes: Apartment, house, land – speculation tax, checklist & more

Taxes when selling real estate – When selling real estate, whether it’s a condo, house, apartment building, commercial property or land, taxes may be due. As you will see in a moment in the tax checklist, there are currently 4 possible tax types, for you as a real estate seller. It’s all about speculation tax, for sales within the first 10 years. In addition, there is a typical question: who pays the real estate transfer tax, buyer or seller? Anyone who sells 3 or more properties in 5 years is also subject to commercial property trading and therefore business tax. Last, for the sake of completeness, the sales tax (buyer) for commercial real estate trade. Avoid mistakes when selling real estate, learn about taxes: Learn more about taxes when selling real estate here.

Tax Checklist: Real Estate Sale

Long story short. When it comes to real estate taxes, you often get long explanations. In principle, the taxes can be summarized in 4 simple points.

Important! This small guide is intended to give you an understanding of the subject of real estate and taxes. In all cases, talk to your expert or advisors in the field, about your personal sales situation.

The Tax Checklist:

  1. You pay speculation tax (under 10 years) on the gain; for private and commercial
  2. Real estate transfer tax pays the buyers; for private and commercial
  3. You pay trade tax (observe the 3-object rule); for commercial trade
  4. Value added tax is paid by the buyer; in the case of commercial trade

More specific then are inheritance tax (ErbSt) and gift tax (SchenkSt). More about this in: Save taxes with real estate.

Now let’s take another look at all the tax burdens in detail:

Speculation period for the sale of real estate

As described in the introduction, the speculation period applies to property sales. The first important question for private sellers is: Have you used the property yourself in the last 2 years or has it been used by a third party?

Own use or third-party use

For private sellers, this aspect is very important with regard to speculation tax. Was your property used by you yourself before the sale or was it used by someone else?

Gains from the sale of an owner-occupied property are tax-free. Two factors must be met for this, it must 1) have been used by you in the last two years (residential purpose) and it must 2) have been used by you, for residential purposes, in the year of the sale.

Gains from the sale of an owner-occupied property are tax-free (> 2 years)

Tip. Residential purpose means that you live in the property as the owner or children entitled to child benefit or spouses and partners.

Sell tax free after 10 years

The speculation period means that a property can be sold tax-free after the expiry of the period. The speculation period ends automatically after 10 years. If you sell your condominium, your house or your land within this period, with a profit, then the speculation tax is due.

Speculation tax under 10 years

The speculation tax rule:

  • Under 10 years: speculation tax applies
  • From 10th year: no speculation tax

Tip. Read more about saving taxes with real estate here.

Calculate speculation tax: How much is the speculation tax?

How high the speculation tax is depends on your tax bracket. As a rough rule, you can remember that the speculation tax is approximately 40% of the profit. Let’s take a look at a calculation example:

Proceeds from sale 1.200.000
– Selling costs like painter 60.000
– acquisition cost 850.000
= Taxable profit 290.000
– Speculation tax (according to tax rate) 40%
= Tax payable 116.000

Now we come to the big question, can you still “save tax” here, are there costs you can deduct from speculation tax?

Speculation tax = amount of increase in value

So that you can “reduce the tax”, we must go to the taxable proceeds. Expenses that minimise the proceeds are selling costs, i.e. costs such as the broker’s commission or painting work (tip: simultaneous increase in value).

Income Tax Act (EStG): § 23 Private sales transactions

In principle, the following applies (according to § 23 EStG): If you sell your property only ten years after the purchase, you do not have to pay taxes.

(1) Private sales transactions (§ 22 number 2) are

  1. Sale transactions for real estate and rights subject to the provisions of civil law relating to real estate (e.g. hereditary building rights, mineral extraction rights) for which the period between acquisition and sale does not exceed ten years. Buildings and outdoor facilities are to be included insofar as they are erected, extended or expanded within this period; this applies accordingly to parts of buildings that are independent immovable assets, as well as to owner-occupied apartments and rooms owned in part. Excluded are assets that were used exclusively for own residential purposes in the period between acquisition or completion and sale or for own residential purposes in the year of sale and in the two preceding years;
  2. Sale transactions for other assets for which the period between acquisition and sale does not exceed one year. Disposals of items for everyday use are excluded. In the case of the acquisition and sale of several similar foreign currency amounts, it is to be assumed that the amounts acquired first were sold first. In the case of assets within the meaning of sentence 1 from whose use as a source of income income is generated in at least one calendar year, the period shall be increased to ten years;
  3. Sale transactions in which the sale of the assets takes place earlier than the acquisition.

The transfer of an asset to the private assets of the taxpayer through withdrawal or termination of the business shall also be deemed to be an acquisition. In the case of acquisition free of charge, the acquisition or the transfer of the asset to the private assets by the predecessor in title shall be attributed to the sole successor in title for the purposes of this provision. The acquisition or disposal of a direct or indirect interest in a partnership is deemed to be the acquisition or disposal of the pro rata assets.

The following shall also be deemed to be a sale within the meaning of sentence 1 number 1

  1. The contribution of an asset to the business assets, if the disposal from the business assets takes place within a period of ten years from the acquisition of the asset, and
  2. The hidden contribution to a corporation.
    (2) Income from private sales transactions of the kind referred to in paragraph 1 shall be included in the income from other types of income insofar as it belongs thereto.
    (3) The profit or loss from sale transactions pursuant to subsection 1 shall be the difference between the sale price on the one hand and the acquisition or production costs and the income-related expenses on the other. In the cases referred to in paragraph 1, sentence 5, no. 1, the selling price shall be replaced by the value assessed for the time of the contribution in accordance with section 6, paragraph 1, no. 5; in the cases referred to in paragraph 1, sentence 5, no. 2, it shall be replaced by the fair market value. In the cases referred to in subsection (1) sentence 2, the acquisition or production cost shall be replaced by the value determined in accordance with section 6(1) no. 4 or section 16(3). The acquisition or production costs are reduced by deductions for wear and tear, increased deductions and special depreciation insofar as they have been deducted in the determination of income within the meaning of § 2 paragraph 1 sentence 1 numbers 4 to 7. Profits shall remain tax-free if the total profit generated from the private disposal transactions in the calendar year was less than EUR 600. In the cases of paragraph 1, sentence 5, number 1, profits or losses are to be assessed for the calendar year in which the price for the disposal from the business assets accrued, and in the cases of paragraph 1, sentence 5, number 2, for the calendar year of the hidden contribution. Losses may only be offset up to the amount of the profit that the taxpayer generated from private disposal transactions in the same calendar year; they may not be deducted in accordance with section 10d. However, in accordance with section 10d, the losses reduce the income which the taxpayer has earned or will earn in the immediately preceding assessment period or in subsequent assessment periods from private disposal transactions in accordance with subsection 1; section 10d(4) applies mutatis mutandis.

Source: Federal Ministry of Justice (as of 05/2021).

Real estate transfer tax: buyer or seller?

Do you have to pay land transfer tax as a seller? Good news! This tax is incurred on the buyer’s side.

Buyers pay land transfer tax, not purchasers

As a rule, the real estate transfer tax ranges between 3.5 percent and 6.5 percent, depending on the federal state in which the property or land is located. For quick orientation, we have summarised the land transfer tax rates for all 16 federal states here with example purchase prices of 1 – 5 million euros, from Bavaria to Hamburg.

Real Estate Transfer Tax Act (GrEStG): § 13 Tax debtor

Here is a brief look at the legal text according to §13 No. 2 GrEStG.

The persons liable to pay tax are:

  1. As a rule: the persons involved in an acquisition transaction as parties to the contract;
  2. In the case of acquisition by operation of law: the previous owner and the acquirer;
  3. In the case of acquisition by expropriation: the acquirer;
  4. In the case of the highest bid in foreclosure proceedings: the highest bidder;
  5. In the event of the merger of at least 95 per cent of the shares in a company in the hands of
    1. Of the acquirer:
      the acquirer;
    2. Several companies or persons:
      these parties;
  6. In the event of a change in the partners of a partnership: the partnership;
  7. In the case of an economic interest of at least 95 per cent in a company: the entity holding the economic interest.

Source: Federal Ministry of Justice (as of 09/2020).

Commercial property trading: sale of real estate

If you want to sell several properties, more precisely 3 properties or more in 5 years, then you are subject to the provisions of commercial property trading (§15 EStG). In the Income Tax Act (EStG), more precisely in § 15 income from commercial operations, serves to distinguish tax-free income from private asset management and taxable income from commercial operations.

The rule for commercial trade:

from 3 properties in 5 years

If the property is traded commercially, not only is the capital gain taxed, you must also register a trade and pay the corresponding taxes. According to §15 EStG, trade tax is then also due.

Trade tax explained

Trade tax, or GewSt for short, is generally levied on the income of any German commercial enterprise and is therefore based on the objective earning power of the respective company. Since limited liability companies, stock corporations and the like are always regarded as commercial enterprises by virtue of their legal form, trade tax is mandatory for corporations – regardless of the composition of the founding team.

For the sake of completeness, the question: Who pays the sales tax? The buyer pays the sales tax, as well as the land transfer tax.

Save tax with real estate

Reading Tip! Saving Taxes with Real Estate – Learn how to do taxes! You are the greatest financial professional you can find for your individual setting (personal and business). Calculating taxes yourself is the tool to minimize your own tax burden.

So it’s a matter of converting taxes into private wealth…

The less tax you have to pay to the tax office, the faster your private wealth accumulation will go. In this guide you will find more on the topic of tax optimisation. For the most part, we deal with real estate purchases in Germany, but at the end you will also find tips for investments in Europe and the big special: Taxes USA. Start with the basics about ancillary purchase costs in Germany, land transfer tax and legal forms, such as the real estate GmbH, family foundations and other legal forms.