Capital Gains Tax – Detailed Guide and Simple Explanation

This is the basic basic guide you could hope to find on capital gains taxes. Capital gains taxes are incredibly important to understand on your way to extending your portfolio, improving returns, and minimizing your tax expenditure beyond income tax. Capital gains tax are often confused for dividends tax, but this common misconception is one of the many basic steps in this simple explanation guide. First, we go through what capital gains even are, and then continue on to how capital gains are taxed. Capital gains taxes also form one half of the two types of dividends taxes!

Capital Gains Explained – Investment Basics

Capital gains sounds like the best and most confusing financial term you could come up with. It has connotations of wall street and Gordon Gekko, villas in the Hamptons, and invetment portfolios worth millions. Let us take you on the journey of capital gains (and capital losses), and what you need to know about them. You may come in contact with capital gains taxes as part of the dividends you receive, from mutual funds, or from other forms of finances or investment strategies and portfolios.

Capital Gains Definition: What is Capital Gains Income?

By definition, a capital gain is when capital becomes more valuable. This capital is capital asset, and most typically in the form of stocks. Usually the capital gains or losses occur when selling an asset (such as stock in a company). A capital asset, i.e. the thing gaining in value, is also often called a security. Capital assets can occur in the form of stocks, funds, real estate investments, or any number of investment portfolios

• A capital asset which has increased in value since purchase

What are Examples of Capital Gains? How Capital Gains work

Let’s take the example of a real estate investment. You buy an apartment in New York for $300.000. It was in a particularly up-and-coming neighborhood, and now five years later it’s worth $400.000. At this point it is an unrealized capital gain of $100.000. If you decide to sell this apartment, and you get your asking price of $400.000, you will have made $100.000. This is your realized capital gain.

$400.000 – $300.000 = +$100.000 Capital

Now let’s say you decided to invest in a neighborhood which did not fare so well over the years. Suddenly your apartment did not increase in value to $400.000, but rather decreased in value to $250.000. Then you will have unrealized capital loss. If you decide to sell this apartment (perhaps to avoid further depreciation in value), you will have a realized capital loss of $50.000.

$250.000 – $300.000 = -$50.000 Capital

What Counts as Capital? Capital Asset Definition – Dividends, Stocks, Co

To understand what a capital gain really is, it is important to understand what things count as capital themselves, what is the thing gaining in value when we speak of capital gain. Looking at regulations, capital assets are defined as a piece of property which has significant value. That means a quilt given to you by your grandma for free, which you sell for $15, is not a capital gain. Still, capital assets are more far reaching than most people often think: it’s not just related to stocks, but it’s also relevant to dividends, mutual funds, and more. These are all types of capital assets:

• Property, e.g. real estate
• Jewelry, Collectibles, or Art
• Stocks
• Bonds
• Investment Properties

What is the Difference Between Realized Capital Gains and Unrealized Capital Gains? Paper Gains, Paper Losses

Capital gain is, as defined above, just an increase in the value of an asset. This increase in value can occur any time of course, and usually happens a tiny bit every day. A capital gain can therefore occur anytime, but if the asset’s owner were to never sell, then this increase in value would be irrelevant. This type of increase in value, where the owner does not sell, but if he were to sell, he would sell it for a higher price than he bought it, is called unrealized capital gain or paper gain. The increase in the assets value is not transferred to real in-pocket-money, and rather only occurs on paper. A realized capital gain is when the owner ‘cashes out’ and sells his assets for more money than purchased.

• Realized gain is when asset increases in value and is sold
• Unrealized gain (or paper gain) is when the asset is not sold, but would incur capital gain if sold

What Types of Capital Gains are There? Short-Term, Long-Term

Typically you differentiate between short-term and long-term capital gain or loss. As mentioned above, when you own capital it typically changes in value. If you hang on to this capital for less than a year before realizing your gain (i.e. before selling), it is a ‘short-term capital gain’. If, on the other hand, you have owned this capital for longer than a year when you sell it, it qualifies as a ‘long-term capital gain’. These distinctions are quite important because they decide how the profit you make from your investment is taxed.

• Short-term capital gain is when you sell after owning the capital for less than a year
• Long-term capital gain is when you sell after owning the capital for more than a year

How is the Value of Capital Calculated? Details, Explanation, Example

Some capital assets are more straightforward to calculate than other. For example, buying 10 stocks at 30$ a share is quite simple to calculate because the total value of the capital is at 10 x $30 = $300. Other capital assets are much more complex. Take for a example a property, where the land is worth $30.000, and the land owner also builds a dock with a boat. Now the total construction of the dock cost $50.000, and the boat cost $20.000, but the transport of the materials for the dock cost $8.000 and for the boat an extra $2.000. That means the current value of the items is at

$50.000 + $20.000 = $70.000

Yet, when looking at the value of capital such as this, all costs are factored in, which means that for example transportation costs would also be included, leading to a total capital value of

$70.000 + ($8.000 + $2.000) = $80.000

This example demonstrates that the value of capital is desided by all costs (including e.g. insurance costs) in the acquisiton of the asset. In the eyes of the IRS, these are also called capital expenses. By the way, if this scenario took place in Florida, there would be the addition of the documentary stamp tax (Florida’s version of the real estate transfer tax), one of the real estate purchase taxes, and the owner would have to pay the state of Florida property taxes.

What is a Capital Gain Tax? Rates, Long- and Short-Term, More

So we’ve gotten to the heart of what capital gains and losses are, how they are categorized and how to calculate them. Only thing left now is to understand how to tax them. This is probably easier than you imagine, but harder than it should be

Capital Gains Tax Definition: What is Capital Gains Tax?

Capital gains tax is a tax on the profit you make with investment in capital assets. If you buy stocks and sell them for more money than you bought them, you have made profit (i.e. capital gains), and this extra money that you are receiving is taxed. If you sell capital for more than you bought it, you will necessarily, by law, pay capital gains tax.

• Tax on investments which gained value, e.g. stocks that grew

Capital Gains Tax Example Calculation – How Capital Gains Tax Works, Formula

So, let’s say you are filing your taxes. For the past two years you have held some stock in a great company, but now are looking to buy a new car. You sell your stocks for $10.000 more than you bought them for. That means you have realized capital gains of $10.000. Because you held these for longer than a year, you will be taxed at the capital gains tax rate. Also, because you are not married and do not have a partner, you are filing single. For a single filing, below $40.000, there is a 0% tax rate. Great! So on this capital gain you will pay no taxes!

$10.000 x 0 = $0

Now, what if you held on to the same stocks for another year, and then decide to sell them. In this time they gained so much in value that you realize a capital gain of $60.000! Now you will be in a higher tax bracket, that means that you will have to pay some taxes. For capital gains tax rates (see the full details below), the second bracket starts at $40.000 in capital gains. That means you will have to pay 15% tax on the $20.000 which exceed $40.000

($40.000 x 0) + ($20.000 x .15) = $3.000

That means you will have to pay $3.000 in capital gains taxes from your $60.000 realized capital gain.

Are Short-Term Capital Gains Taxed Separately from Income? How Capital Gains Taxes Work

Although, it is important to distinguish taxes on capital gains and capital gains taxes. The capital gains tax only applies to long-term capital assets (i.e. owned for longer than a year), while short-term capital assets are taxed as if they were normal income, at the income tax rate like the salary you receive from work. Capital gains tax rates are lower than income tax rates!

• Short-term capital gains are taxed using income tax rate
• Long-term capital gains are taxed less with capital gains tax rate

When do you Have to Pay Capital Gains Tax?

This is a good question. If you hang on to good stock for 20 years you will continually be becoming more and more wealthy, yet are not paying taxes… right? Yes! You pay taxes on capital gain when this gain is realized. This is what’s called a ‘taxable event’. That means when the event (i.e. selling your capital) occurs, you pay taxes. If you never sell your capital, you won’t have to pay taxes on it! Your tax bill is never affected by unrealized capital gains or losses.

Do you have to Pay Tax on Capital Losses?

No! You do not have to pay taxes on capital losses, because you are not making any money. Quite the opposite, you can deduct capital losses from your tax bill. This is one of the most important ways to reduce your taxes. More on that below.

• You do not have to pay tax on capital losses
• You can deduct capital losses from your tax bill

Capital Gains Tax Rates – USA

The USA has a federal capital gains tax, but also many states have their own capital gains tax rates. That means you have multiple stops that your capital gains will be taxed at.

USA – Federal Capital Gains Tax Rates List, Brackets

For the federal level, your capital gains are taxed at the following rates if you are filing single

• 0% tax: <$40.000
• 15% tax: $40.001 – $441.450
• 20% tax: >$441.450

How much is Capital Gains Tax in New York? Rates, Brackets, List

The state of New York has no free-standing capital gains tax rate. Here, long-term and short-term capital gains are equally taxed using the state’s income tax rate. Just like New York property tax rates, the income tax rates are relatively high, but see for yourself. In New York capital gains are taxed at these rates:

• 4% tax: $0–$8.500
• 4,5% tax: $8.501–$11.700
• 5,25% tax: $11.701–$13.900
• 5,9% tax: $13.901–$21.400
• 6,33% tax: $21.401–$80.650
• 6,57% tax: $80.651–215.400
• 6,85% tax: $215.401–$1.077.550
• 8,82% tax: $1.077.551 +

How much is Capital Gains Tax in California? Rates, Brackets, List

Just like the state of New York, California also has no free-standing capital gains tax rate. Here, long-term and short-term capital gains are equally taxed using the state’s income tax rate. California income tax rates are also quite high, thanks its mega metropolises Los Angeles and San Francisco housing some of the biggest companies in the world. In California capital gains are taxed at these rates:

• 1% tax: $0-$8.809
• 2% tax: $8.809.00-$20.883.00
• 4% tax: $20.883-$32.960
• 6% tax: $32.960.00-$45.753
• 8% tax: $45.753-$57.824
• 9,30% tax: $57.824-$295.373
• 10,30% tax: $295.373-$354.445
• 11,30% tax: $354.445-$590.742
• 12,30% tax: $590.742-$1.000.000
• 13,30% tax: $1.000.000 +

How to Avoid Capital Gains Tax – Saving Money with Deductions

If you are receiving dividends, you probably want to pay as little as possible in taxes. Giving away money that you have invested and worked for seems harsh. Better to structure your taxes better and save money. Maybe not save money from your dividends taxes, but just give less away.

Best Trick for Real Estate: How do I Avoid Capital Gains Tax on Property?

You pay no federal taxes on qualified dividends when your total income is below $39.375! That means if your income is higher, suddenly you have to pay more taxes, and will end up with less money in your pocket in the end. In this case you could actually save money by just working less so as to avoid reaching the point where you have to pay the dividends or capital gains taxes. Remember: This only applies to the federal capital gains taxes.

• No capital gains tax when income is below $39.375

Looking for more ways to save on your tax bill, check out our top tips!

Real Estate Tax Deductions

Tax Deductions for Companies! Capital Expense Deductions

Important in the topic of capital gains, are the fact that acquiring capital assets is incentivized by the state. That means that if you are clever enough to form an LLC or an S corp, you can write off big purchases such as machinery, property, or other items which can count as capital assets. Remember though! Most expenses have to be written off over time, if you buy a car for your business, you cannot deduct the full price of your tax bill in one go.

• Capital expenses can be deducted from tax bill

How to Save Taxes with Capital Losses – What to do when Capital Loses Value

If your investment has lost value, it may hurt at first. This is normal though, and isn’t as bad as you first thought perhaps. This is because you can deduct capital losses from your tax bill. That means you pay less taxes because your investment did not turn out well! Only one catch, while you have to pay taxes on capital gains for all types of assets (e.g. even jewelry), you can only deduct capital losses when you bought your asset for investment purposes. For example stocks, property, etc. are all purely investment, and therefore can be deducted when losing in value.

• Deduct capital loss from tax bill
• Only possible for assets purchased for investment

How to Offset Capital Losses – Capital Gains Tax Explanation, Example

If you have made a significant capital gain in a year, but also capital losses (which, let’s be honest is quite common and to be expected), then you can write off the capital losses. For example, if you have made $200.000 in capital gains over some particularly lucrative stock, but have also made $100.000 in losses from a particularly poisonous investment, then you only need to pay taxes on the $100.000 of profit you made on the first. This is why it is called offsetting, because you offset some of the gain you make with the losses.

• Reduce your capital gain by the amount you lost through your capital losses

Tax Special! Income Tax

To learn about dividends tax means to learn about income tax as we’ve learned. That’s not a problem though because we have a simple guide for learning about income tax for the very beginners. It is a simple explanation of everything you need to know about paying income tax, how to tax income and everything in between. Income tax is something that will follow you forever, so it’s best to get to know it now and forever hold peace with it.

USA Income Tax

Tax Special! Dividends Tax

Dividends tax also utilize capital gains taxes! Although dividends also carry their whole own addition of complications and confusions. We’ve writtena nother helpful and simple guide to learn everything you need to know about dividends taxes, how they work, when they occur, and of course also how to save money on your dividends taxes. No doubt you’re going to learn something very important in this article.

Dividends taxes are taxes on the dividends which you receive as a shareholder in a company. What are dividends? In a sense they are like the company sharing part of their income with you, as a reward and incentive of being a shareholder in their company.

USA Dividends Tax

Tax Special! Property Tax

As mentioned, taxes on property are nearly as complicated as on income or capital. Property taxes, where they are taxed, what they tax, and how to pay less property taxes, can all be found in our all-encompassing guide on property taxes.

Property tax is often confused as being a tax on real estate property. Yet this is a misconception. The largest proportion of property taxes come from real estate, because this is the most expensive property most people own. Yet property taxes can also be levied on airplanes, computers, furniture, etc. In the U.S., each person pays an average of $1.617 in property taxes a year. The state which pays the most property taxes is New Hampshire with $3.307.

USA Property Taxes

Dividends Tax – Detailed Guide and Simple Explanation

This is the basic basic guide you could hope to find. We take you through dividends tax from the very beginning to the very end, covering everything you could hope to learn about this form of tax, from income tax or capital gains, tax deductions, and more. Although usually reserved for tax collectors and your accountant, it’s good to know exactly what this is, how much it is, and how to to reduce it. Even if you’re not having to pay dividends tax at the moment, it’s good to get read up on it in the meantime.

Dividends Explained – Investment Basics

So, dividends. That’s what’s being taxed, and to understand how this tax works, we first take a look at how dividends work. More specifically, what are dividends?

Dividend Definition: What is a Dividend

A dividend is by definition number that’s divided by another number. In the context of finances, a dividend is the pay-out of the company’s earnings to its shareholders. There are two basic ways for shareholders of a company to make money, either by selling their shares, or because the company grows and pays out dividends to its shareholders.

• A dividend is what a company pays out to its shareholders when it makes profit
• Like a reward for investing

What is a Dividend Example? How Dividends Work

Consider you decide to invest in a company, for example you invest 500 shares. This company does quite well and over the next quarter they earn heavily. They then decide to pay out dividends. Because they did so well, they decide to pay out $0,50 per share. You own 500 shares, and that means

500 x $0,50 = $250

You receive $250. You do not have to sell your shares, and nothing changes about your shareholding in the company, it is merely a thank you, or a form of reward for holding shares and the company making earnings.

What are the Types of Dividends?

There are 5 basic types of dividends. They are: cash dividends, stock dividends, property dividends, scrip dividendss, and liquidating dividends. In the example above, we are dealing with a cash dividend. These are the most popular and frequent types of dividends. Next, stock dividends. These are where a company rewards a shareholder not with cash, but rather with more stocks. That means that the shareholder did realize an increase in capital, but not in the form of money, but rather in the form of owning more of the company. A property dividend is when you receive an object or any form of property as a dividend (e.g. a new sports car). A scrip dividend can be imagined as an I O U, and is typically done when companies do not have enough liquid assets. A liquidating dividend is when the company is dissolved and shareholders receive their investment.

• Cash Dividend
• Stock Dividend
• Property Dividend
• Scrip Dividend
• Liquidating Dividend

What is a Qualified Dividend? Difference Ordinary, Qualified Dividends

Especially when considering dividends taxes it is important to consider whether a dividend is qualified or unqualified (called ordinary). An ordinary dividend is taxed much higher than a qualified dividend, because ordinary dividends are taxed as income, while qualified dividends are taxed at the capital gains tax rate. So what’s the structural difference between these two types of dividends? The company behind them is either qualified or not.

• Qualified dividends are taxed at a lower rate!

When can Dividends be Qualified? Types of Companies

Whether a company’s dividends can become qualified depends on the origin of the company (i.e. American or not), the type of stock (e.g. REITs are not qualified), and the holding period. That means that the dividends can only be taxed at the lower capital gains tax rate when these requirements are fulfilled.

• Companies must fulfill requirements to become qualified

What is a Dividend Tax? Rates, Qualification, More

Now we know that a dividend is really just a form of payment from a company in which you have invested. You receive payment because the company grows and you are a shareholder within the company. Now it also makes sense that this is being taxed. Since you are making money, it is in a sense a form of income. But it’s slightly more complicated than that

Dividends Tax Definition: What is Dividends Tax?

Dividends tax is the tax on income made in the form of dividends. This is quite self-explanatory. Dividends are always taxed and there is no way around it. Even if you immediately invest all your dividends back into the same company, you will have to pay taxes on the dividends paid out to you. Dividends taxes themselves don’t actually exist, as they are either income taxes or capital gains taxes. It just depends on whether you have qualified dividends (taxed as capital gains) or ordinary dividends (taxed as income).

• Can be taxed as income or as capital gains
• Depends on qualification of dividends

To our article on Capital Gains Taxes: Capital Gains Taxes USA

To our article on Income Taxes: Income Taxes USA

Dividends Tax Example Calculation – How Dividends Tax Works, Formula

As mentioned before, dividends taxes are either income tax or capital gains tax. Either way we will give an example here. Take an income of $8.000 in a year for a unqualified dividend. This falls under the first tax bracket (when filing as a single) in the income tax brackets. That means you will pay 4% tax on this.

$8.000 – ($8.000 x 0.04) = $7.680

That means in the end you receive $7.680, and $320 you give away as part of your dividends tax.

What is Dividends Tax Rate? Tax Brackets, Rates

Depending on the type of dividend you have, you will pay different dividend tax rates. In short, the government taxes dividends either as capital gains or as income. There are two types of dividends, qualified (taxed as capital gains) and unqualified (taxed as income, see below for more). Therefore the tax rate of dividends tax is either the tax rate for your income tax or capital gains tax.

• Dividends tax rate is the same as either capital gains or income tax rates!
• Depends on whether a dividend is qualified

For tax brackets for unqualified dividends check out our article on

Income Tax USA

How to Save Money on Dividends Tax – Deductions, Itemizing

If you are receiving dividends, you probably want to pay as little as possible in taxes. Giving away money that you have invested and worked for seems harsh. Better to structure your taxes better and save money. Maybe not save money from your dividends taxes, but just give less away.

Best Trick: Save Dividends Tax with Income

You pay no federal taxes on qualified dividends when your total income is below $39.375! That means if your income is higher, suddenly you have to pay more taxes, and will end up with less money in your pocket in the end. In this case you could actually save money by just working less so as to avoid reaching the point where you have to pay the dividends or capital gains taxes. Remember: This only applies to the federal capital gains taxes.

• No capital gains tax when income is below $39.375

Tax Deductions of Wealthy Families: Gifts!

Using what is called the annual gift tax exclusion, it is possible for wealthy families to keep money within the family instead of going to the state. The parents give their (adult) children very highly appreciated shares of stocks which pay dividends. This way, the unrealized gain is passed on, without triggering the deferred taxes! This works because the children will most likely not be as high earners, and therefore the dividends will be tax free under the capital gains tax.

• Pass on appreciated dividends-paying stocks to children whose income is not too high

Use Capital Gains Tax Tricks!

Capital gains taxes are possibly the most lucrative for tax deductions and reducing your tax bill at the end of the year. There are many ways in which you can use dividends taxes on qualified dividends to reduce your tax bill, because they are capital gains taxes!

• Capital Gains Taxes USA

Transform into Real Estate!

Everyone knows real estate is a lucrative business, even more so thanks to the countless tax incentives. So maybe instead using dividends for income, it is better to transform them into real estate property using a real estate LLC. Read more about real estate tax tricks:

• Real Estate Tax Deductions

Tax Special! Income Tax

To learn about dividends tax means to learn about income tax as we’ve learned. That’s not a problem though because we have a simple guide for learning about income tax for the very beginners. It is a simple explanation of everything you need to know about paying income tax, how to tax income and everything in between. Income tax is something that will follow you forever, so it’s best to get to know it now and forever hold peace with it.

Income Tax USA

Tax Special! Capital Gains Tax

Capital gains tax is one of the two sisters of dividends taxes. It is a vital tax to know if you want to invest, and plan on increasing value of capital. Capital gains taxes are among the most important for the welathy, and for good reason. Knowing how to use these to your advantage is critical for multiplying your wealth.

Capital gains tax is a tax on the profit you make with investment in capital assets. If you buy stocks and sell them for more money than you bought them, you have made profit (i.e. capital gains), and this extra money that you are receiving is taxed. If you sell capital for more than you bought it, you will necessarily, by law, pay capital gains tax. Although, it is important to distinguish taxes on capital gains and capital gains taxes. The capital gains tax only applies to long-term capital assets (i.e. owned for longer than a year), while short-term capital assets are taxed as if they were normal income, at the income tax rate like the salary you receive from work. Capital gains tax rates are lower than income tax rates!

USA Capital Gains Taxes

Tax Special! Property Tax

As mentioned, taxes on property are nearly as complicated as on income or capital. Property taxes, where they are taxed, what they tax, and how to pay less property taxes, can all be found in our all-encompassing guide on property taxes.

Property tax is often confused as being a tax on real estate property. Yet this is a misconception. The largest proportion of property taxes come from real estate, because this is the most expensive property most people own. Yet property taxes can also be levied on airplanes, computers, furniture, etc. In the U.S., each person pays an average of $1.617 in property taxes a year. The state which pays the most property taxes is New Hampshire with $3.307.

USA Property Taxes

Virtual realtor: Real estates 4.0

When you ask architects, builders and other people in the real estate industry what inspires them, it is usually the future. Future, is the change of reality and always brings different aspects.

While the world of real estate keeps turning over the years, buildings become more modern, require less energy, create different cityscapes, the presentation of real estate has often remained at a standstill, in the classic real estate exposé.

Future architecture: just one example from Berlin

To stay in the example of architecture, architectural firms such as Graft in Berlin show how to design modern buildings for future-oriented cities. Urban development that is no longer expressed in the typical, boring facades, but in elements, shapes and materials that bring completely new visual hotspots to the city architecture.

For example, if you look at the villas built by the architects in Berlin, for example in Grunewald, you can see this unique architecture from hundreds of meters. As well as the “Villa M”, a cube made of ceramic plates, each one unique. From the outside, the entire architecture is reminiscent of a giant erratic block. A true one-of-a-kind, as is the outer ceramic casing. In all of Berlin Grunewald, a unique object. Such pioneers are needed so that new ideas can emerge.

But pioneers do not only exist in architecture. There is now also the first real estate portal, with virtual avatar “Ella”, for presentation.

Change in presentation: virtual exposé

What if you could present any property, without an extra visit to the site, moderated? Be possible in 2021!

Digital avatars present real estate

First, what is a digital avatar? Digitalization is on the rise. In architecture, as described above, in building technology and also in presentation. So virtual, digital people are taking over presentation and moderation.

Especially for supra-regional realtors, who have properties not only in their own area, but in other cities, states or even countries, the presentation of a property involves a relatively large amount of effort. Travel must be organized, not only for the realtor himself, but also for the potential buyer, in the further step.

• Model agency: Ella (VR)

With this new technology, the entire laborious process can be skipped, the property is presented by a digital avatar.

Example: Real estate portal with digital presentation

Pictures say more than a thousand words, so here is a small video:

Source: GetKey

Here, for the very first time in the world, a virtual avatar presents a property. Absolute top performance! Here technology combines with one of the largest economic sectors of this planet, the real estate industry.

Program code & CGI design: making ideas real

Digital avatars are animated from program code, partially post-processed with CGI design. This is how ideas are turned into reality, virtual persons who can then travel to places, talk about topics and much more.

In fact, we are thus only at the beginning of the journey in the real estate industry.

XXL precast factories and 3D printers

XXL Prefabrication Factories – Today, the first factories are being developed to develop entire prefabricated parts for high-rise buildings, for entire housing developments, not just the individual prefabricated house.

3D Printers – 3D printers are now shaping houses so that building materials no longer need to be purchased at great expense, everything comes easily and quickly from 3D printing. Here’s a short video demonstrating how a 3D printer builds a house in no time.

Just as construction companies, developers and the building industry are changing, so will the marketing of real estate, in the wake of digitalization.

Presentation of house & apartment through videos: Supraregional

Until now, real estate exposés were preferred by almost everyone. No between technology of presentation he has really prevailed, for example, 360 ° house tours. Why? It lacks the human element, someone to guide through the property.

Of course, as a real estate realtor, you could cover the presentation with a video, so prospective buyers see the property before visiting (just from photos). But this has two disadvantages. Either you have to moderate yourself, that is also be on site, or someone else has to do it and convey the same spirit, the same still know how, as the real estate realtor. Another disadvantage, the language. Do you know Israeli? Spanish? French?

In short, the presentation of the property has different factors, from location to languages. So, as soon as properties need to reach a national or international audience rather than just a regional one, the effort of presentation increases.

Lure new target groups: Marketing tool for real estate realtors / portals

Just as in the entire economy, the real estate industry is also about supply and demand. The new generation of future real estate owners, by purchase or inheritance, has grown up with the Internet. They jump on other carriers (trigger factor).

Therefore, new concepts are needed, also in real estate marketing. On the one hand in the marketing of condominiums, which are sold individually to private persons, for example over real estate portals, just as with the sales of luxury real estates, which are now times more difficult over a badly made Immobilienexposé, as PDF to sell.

If you also want to show innovation, you can’t avoid new marketing strategies. Bill Gates (founder of Microsoft) gave the Internet only a few years in the beginning. Today, more than 20 years later, many real estate realtors, realtor offices and real estate portals are using social networks such as Facebook and Instagram (Social Marketing [external]).

Strategy: Reaching Generation Z

In Israel, a new project has now been launched that has never been seen before in the world. The above already to see in the example video, real estate are presented by “Ella” here.

Source: GetKey

Voice use in technology – Putting digital people in commercials, breathing emotion into them, a really difficult job. The next stage was now to integrate speech, so that Ella becomes a multi speech talent. As seen in example video (above), for example in Hebrew. This way, Israeli customers are specifically adressed on the website.

Additionally, in the following there may be slight grammatical errors, as this article was written by a German tax expert. This does not detract from the quality of information.

Sanierung, Modernisierung or Renovierung? Why?

Further down we explain all the details about things you have to know about renovating or refurbsihing your house or property in Germany. But first, we look at what the terms which you will often hear in the German real estate market even mean. So, what does Sanierung mean?

What is a “Sanierung”?

A Sanierung is an improvement on fundamental issues or problems which make living in a building difficult or very uncomfortable.

In German, there are multiple words for what in other countries may all fall under the term renovation. There are three types of these. First, a Sanierung, which is a very fundamental improvement and update to all things in the house, this means e.g. old sinks may be replaced. The translation of Sanierung is refurbishment. In general this is more effort than just a renovation, as a real issue is fixed. A renovierung is the second type. Here, more aesthetic things like the colour of the walls will be redone. Lastly, a “Modernisierung”. This is, as the word implies, when current state of utilities, walls, etc. are made more modern.

Sanierung is a renovation which fundamentally removes problems in your apartment, house, etc.

This article is part of our guide on German real estate and tax optimization. Learn more here:

• Save Money – Tax Optimization with Property Investments

Sanierung as Effective Increase in Value of your Property

The renovation not only provides a modern look, it also saves energy and thus increases the value of the house. For economic reasons, renovation often makes sense. This is also true if you do not want to sell the house and hope to get a higher sales price by the renovation. Because by the so-called energy renovation you can reduce your additional costs significantly, so that the investment pays off in the long run.

Risk of Damage Decreases: Selling Price Increases

In addition, the premiums for residential building insurance for refurbished houses are significantly lower than for properties without core refurbishment. This is due to the fact that the risk of damage is significantly reduced, so that in many cases more than half of the insurance costs can be saved. If you would like to sell your house and are not sure whether renovation is appropriate, you are welcome to contact us.

Holistic Refurbishment: One-time Expense

When renovating a house, it should always be considered as a whole. Because only extensive renovation leads to better living quality and lower energy costs. For buildings in desolate condition, a core renovation is necessary. In addition, under certain circumstances a roof renovation can become due. This is the only way to create the optimal basis for a renovation. Afterwards, a tight building envelope is produced, which, due to good insulation, ensures that the heating remains in the house.

This also includes the installation of a new heating system, which at least partially uses renewable energies. Multiple glazed windows with good insulation also contribute to a better energy balance.

Modernization and value enhancement at a glance:

• Increase in value through modern appearance
• Energy efficiency and economy
• Higher living quality
• Reduction of additional costs
• Higher selling price

Core Renovation & Roof Renovation

Before you start with the renovation, you should have an expert determine which measures are necessary for your house. Once you have identified the weak points, you can start planning.

Core and roof renovation is by no means necessary for all buildings. However, if you buy a old building, it can happen that you are suddenly faced with this task.

All electrical and water pipes are replaced as part of the core renovation. In many cases, this also includes the complete roof covering. The condition of walls, ceilings, floors, windows and doors is checked extensively. If necessary, these are also renovated. Existing rooms are not destroyed, however. No walls are torn down.

The core of the building remains intact. If inner walls are torn down so that only the outer walls are preserved, this is called gutting.

Property Under Monument Protection

Germany is known for its strict laws protecting monument and historic status of buildings. Special caution is required for buildings that are under monumental protection. In this case, you must contact the responsible office for monument protection and ask for the conditions for core renovation.

Various funding options are available for core renovations, so you can save a lot of money. For example, you can deduct the costs for the craftsmen from your tax return and recoup up to 20 percent of the expenses.

20% craftsmen costs are reimbursed in your tax return

However, the maximum amount for a refund is 1,200 euros. In addition, there is the possibility to take advantage of one of the many support programs for the renovation of old buildings. However, you will usually only be able to benefit from these programs if you decide to carry out an energy-efficient renovation.

The subsidy programs differ from region to region and therefore vary greatly. A certified energy consultant can advise you in this regard and help you find the right program for you.

Maintenance Reserve According to Calculation Regulation

Reading Tip! In our formula collection you will find many more important formulas for the calculation of reserves, yield & Co. calculations and examples for buying, selling and renting. Rent or purchase price multiplier, gross yield, return on equity, property yield, reserves for repairs and much more.

There are too many small hidden costs when buying real estate in Germany to remember. Our guide:

• Hidden Costs when Investing in German Real Estate

Peter’s formula

The Peter’s formula assumes a useful life of 80 years.

The formula means that in a certain time 150% of the pure production costs (building costs without costs of paying for property, development, architect, etc.) for maintenance and reorganization will come up again.

For a House
80 years useful life
150% of production costs for renovation, maintenance

For condominiums in multi-family houses, the assumption is 100%. Distributed to 65% for work on common property and another 35% for work on special property.

For a Condominium
80 years useful life
100% of the manufacturing costs

Reserves Formation

If you calculate further exemplary with an object, whose production costs are 4,500 Euro per square meter, then this results in a monthly reserve of 7.05 Euro per square meter.

Reserve: house
Production costs: 4.500 € / m²
Monthly reserve: 7,05 € / m²

For condominiums, this results in a somewhat lower reserve of 4.50 euros per square meter for the owners’ association.

Reserve: condominium
Production costs: 4.500 € / m²
Monthly reserve: 7,05 € / m²

Tip! These are divided into the aforementioned 65% for work on common property and another 35% for work on special property.

• Reserve for owners’ association: 4.65 / m²
• Reserve apartment owner: 2,40 € / m²

These costs cannot be passed on to the tenant.

Annual reserve according to § 28, paragraph 2

Also the second calculation regulation supplies in § 28, paragraph 2 reference points over the appropriate height of an appropriate maintenance reserve. These cost estimates are significantly lower than those according to the Peter’s formula, but are graduated according to the age of the building (based on production costs of 4,500 euros per square meter):

• Residential buildings which are up to 22 years old = 21,30 € / m² living space
• Residential buildings which are up to 32 years old = 27,00 € / m² living space
• Residential building over 32 years = 34,50 € / m² living space
• Building with elevator + 3,00 € / m²

Energy Renovation: Low Energy Consumption

Energy-efficient refurbishment is the repair of a building with the aim of ensuring the lowest possible energy consumption. If you do an energy update, you save heating costs, contribute to climate protection and can look forward to more living comfort.

This makes sense not only if you want to live in the house yourself, but also if you plan to sell your house.

More and more people are looking for sustainable and energy-saving houses. So you increase your chances on the housing market with an energy-efficient renovation. An important component of energy-efficient renovation is the effective and complete insulation of the building envelope. A continuous airtightness is the top priority here.

Outer Building: Outer Walls, Roof, Front Door, Windows & Co.

The building envelope includes not only the exterior walls, but also the roof, front door, windows and basement ceiling. All these parts shield the living space from the cold outside air. Poor thermal insulation of the building envelope has a catastrophic effect on the energy consumption of the house.

Up to – 50% reduction in energy demand = running costs

In many cases, the need can be reduced by more than 50% by means of an appropriate renovation.

Insulation: Mineral Fibers, Natural Insulating Materials & Co.

Various materials are used for insulation, such as mineral fibers or natural insulating materials, for example cellulose, hemp or cork. The higher the insulation thickness, the more energy can be saved. Leaks and thermal bridges must be avoided at all costs.

An airtight building envelope provides the best savings. With a modern heating system, which is largely powered by renewable energies, you can reduce the ecological footprint of your house and thus contribute to climate protection. At the same time, you can save energy with a new heating system, because most oil and gas heating systems are outdated and have poor efficiencies. Therefore a lot of heating energy is wasted.

Even if you choose a classic heating system that runs on fossil fuels, you may be able to save a lot of money.

Future-Oriented Heating Systems: Heat, Pellet & Co.

However, heating systems that use renewable energy are of course more future-oriented. You have a large selection of different systems. For example, there are heating systems that use solar energy or domestic hot water. Geothermal heating systems are also possible. Pellet heating systems are also considered climate-friendly. Which solution you choose depends not only on your preferences, but also on the individual circumstances. An energy consultant will find the optimal solution for you.

Before the “Sanierung”: Energy Consultation

Before you begin with the energy renovation, you should take an energy consultation. Only with the help of an expert can you get the best out of your house. This is due to the complexity of the topic.

A house is always an overall concept that is influenced by many small changes. These should influence each other as positively as possible. Individual renovation actions that are carried out unprofessionally often do not bring the desired effect or even lead to unexpected additional costs.

Certified Energy Consultants

In order to avoid this problem, let a certified energy consultant help you best. In Germany, these are certified and highly specialized professionals. These experts investigate the condition of the building and develops then together with you a concept for a meaningful and goal-prominent energy counselling.

He not only inspects the building, but also takes your needs into consideration and of course includes the budget in the planning.

In addition, he can point out possibilities to you that you did not even know existed before. If you are looking for a good energy consultant, you can for example contact the chamber of architects of your federal state or search the internet for a suitable expert.

State Subsidies

The German state encourages green energy, and therefore subsidizes it. Just like the energy renovation itself, the costs for the energy consultant can also be supported by subsidies. The Federal Office of Economics and Export Control subsidizes the energy consulting for single and two-family houses as well as for residential units.

• State subsidies – official site of the federal office (in German)

Redevelopment of Old Building

Renovating old buildings – Old buildings are very popular because of their unique structure. Large rooms with high windows and old wooden doors, which may creak a little when opening and closing, stand for a traditional way of life. Many of the buildings are more than one hundred years old. A renovation can give the apartments a new shine. If extensive work is planned both on the façade and the interior, it is advisable to relocate tenants in advance.

For a complete refurbishment, the move-out of tenants is even compulsory. The same applies to owners who, with the support of the owners’ association, have agreed on a renovation in a majority resolution. However, owners who have acquired a property for the first time also like to strive for a renovation of an old building with subsequent new letting. There is a good chance that the renovated apartments will enjoy great popularity in all regions of Germany and will subsequently be rented out at short notice.

Heating System

The topic of heating is not only interesting for building owners, but also for property owners. Heaters are not only necessary in a real estate, but also legally required. What types of heating are there, how do they have to be maintained and are there legal subsidies for the construction of certain types of heating or do the costs have to be paid completely by the owner?

• The whole guide: Heating

Solar heat: Solar Energy

Solar thermal is the process by which solar energy is converted into usable heat. In residential properties, the heat produced is usually used to heat water or for heating. Depending on the location and conditions of the property, this system can completely replace the previously used heating system.

State subsidy of 2,000 euros

Gas Heating: heating with natural gas, liquid gas or biogas

Gas heating is probably the most widespread type of heating in Germany and rightly so, because the system offers many advantages. Modern technology, efficiency and inexpensive offers characterize the gas heating. In addition, they are easy to combine with renewable energies, save space and can be easily installed during modernization and renovation.

Oil Heating: Heating with fuel oil or bio fuel oil

Oil heatings are after gas heatings the probably most frequently occurring systems in Germany. The function mode is simple and works for decades in the same way. The fuel fuel oil is pumped over an oil pipe to the heating system where it is sprayed and burned. The heat that is generated during this process is used to heat up the heating water and thus to heat the house. Most of these components can be found in the boiler, which now takes up little more than one square meter of space and can even be hung on the wall, depending on the model.

Pellet Heating: Ovens with pressed wood residues

A modern pellet heating system is known for low fuel costs as well as for environmentally friendly heating and is therefore one step ahead of conventional gas and oil heating systems. Also the function mode is relatively simple. The wood pellets are periodically delivered to the combustion chamber by means of a feeder, so the correct filling is fully automatic. The heat generated by burning the pellets is used in a separate boiler to heat the water. Thus, both the heating can be operated and the hot water can be produced.

Rental: Laws, Taxes & Tenants

Renting a property can be a great extra income, but it can also become your main job. Landlords have many duties towards the tenant and have to take care of the property. However, if this is successful, a lot of profit can result. We will explain how you can best let your property and how to find the right tenant for you.

There is so much to learn!

The Right Tenants, Suitable Lease & Co.

How do I set the rental price correctly? How does my advertisement appear attractive? And how do I draw up a suitable and fair rental contract? A future landlord asks himself all these questions, because in order to successfuly rent out a property, a lot of knowledge and experience is required. But if you follow a few simple steps, you will make the leap to a successful landlord and profit from the earnings.

In addition come: Landlords have many duties and tasks, among these are for example the organization when changing tenants or the annual preparation of a service charge statement for the tenant. The rent can be set with the help of the local rent index, but it must always be considered whether the region concerned has a rent brake or not. The rental agreement should be fair for both tenant and landlord and should regulate all important points. When choosing the right tenant, it is not only the sympathy effect that counts, but also other important factors, such as creditworthiness – learn everything you need to know about renting your property in our article.

The correct tenants, suitable lease & Co. read on here:

• Leasing out House & Apartment.

Conclusion: Renovate Property

A core renovation brings your property up to date and increases its value at the same time. It increases the comfort of living and in most cases also reduces the energy consumption of the house. As a result, energy costs and the C0² emissions of the house can be reduced. Since in the long run a change to non-fossil fuels from heating systems is inevitable, you can also equip your house for the future. In order to carry out a renovation as effectively as possible, it is essential to seek the advice of an energy expert.

Thinking about buying a house? These are the best methods to save money on your investment

• Saving Money – Tax Optimization on German Real Estate

Additionally, in the following there may be slight grammatical errors, as this article was written by a German tax expert. This does not detract from the quality of information.

Grundwerbsteuer Explained: Purchase of Land or Property

As described in the introduction: Whenever a property or part of a property is purchased, land transfer tax is incurred in Germany. The tax is levied on the basis of the Land Transfer Tax Act (GrEStG). The amount of the real estate transfer tax is determined by the federal states. It is therefore a state tax. The respective federal state can therefore decide for itself whether it passes on the tax levied to its local authorities. But first we look at what a Grunderwerbsteuer really even is.

Are you looking at investing in German real estate? Don’t miss our article

• How to Save on Real Estate Taxes in Germany

Grunderwerbsteuer Meaning

Grunderwerbsteuer is a tax on the purchase of real estate. The translation of Grunderwerbsteuer is real estate transfer tax or land transfer tax. Note, in the USA, this concept has different meanings depending on the state (more on that in our article on Real Estate Transfer Tax in the US). How the Grunderwerbsteuer works is explained further below.

Who pays the Real Estate Transfer Tax?

After you have bought your property, the purchase must still be notarized. The purchase contract states who has to pay the land transfer tax: buyer or seller. Without this additional agreement, the law (§13 No. 2 GrEStG) states that first of all the previous owner and the purchaser are tax debtors, i.e. both together, buyer and seller.

After notarization, the notary sends the signed purchase contract to the responsible tax office, which then writes to the party to be charged with the real estate transfer tax assessment. The tax is due one month after notification of the tax assessment. However, the tax office may set a longer payment deadline if necessary (see Grunderwerbsteuergesetz (GrEStG) §15 Due date of the tax).

Grundwerbsteuergesetz (GrEStG): § 13 Tax debtor

Here is a short look at the legal text on real esate purchases according to §13 No. 2 GrEStG. This is our best attempt at a translation, these terms are as similar as possible to the original meaning.

Tax debtors are:

• By Default: the persons involved in a purchase transaction as contractual parties;
• In case of acquisition by operation of law: the previous owner and the acquirer;
• In the case of acquisition in expropriation proceedings: the acquirer;
• In the case of the highest bid in compulsory auction proceedings: the highest bidder;
• In the case of the merger of at least 95 per cent of the shares in a company in the hands of the acquirer: the acquirer;
• In case of acquisition by several companies or persons: these parties;
• In the event of a change in the membership of a partnership: the partnership;
• In the case of an economic interest of at least 95 per cent in a company: the legal entity which holds the economic interest.

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

Cost table: Tax According to Purchase Price

Status: 09/2020

Tax Rate by State: Amount

• Bavaria – 3,50%
• Berlin – 6,0%
• Bremen – 5.0%
• Hessen – 6.0%
• Lower Saxony – 5.0%
• Rhineland-Palatinate – 5.0%
• Saarland – 6.50% li>
• Saxony – 3,50%
• Saxony-Anhalt – 5.0%

Property Tax Compared to Trade Tax, Income Tax and Sales Tax

Real estate tax is levied on land, but also on hereditary building rights to land, the so-called substance tax. The assessment basis for the land tax is usually the value of the land plot. The tax rate is usually set at the municipal level.

This infographic below shows the tax revenue of German municipalities according to tax types (in billions of Euros). Please note that an English translation was not available. Blue denotes income tax, green is trade tax, purple is property tax, and orange is goods-and-services tax.

Purchase Price – 1.000.000 Euro

Below a graph for the amount of taxes you will pay based on what state you are buying the property in. The basis is a purchase price of 1 million Euro.

Purchase Price – 1.200.000 Euro

Below a graph for the amount of taxes you will pay based on what state you are buying the property in. The basis is a purchase price of 1.2 million euros.

Purchase Price – 1.500.000 Euro

Below a graph for the amount of taxes you will pay based on what state you are buying the property in. The basis is a purchase price of 1.5 million euros.

Purchase Price – 2.000.000 Euro

Below a graph for the amount of taxes you will pay based on what state you are buying the property in. The basis is a purchase price of 2 million euros.

Purchase Price – 2.500.000 Euro

Below a graph for the amount of taxes you will pay based on what state you are buying the property in. The basis is a purchase price of 2.5 million euros.

Purchase Price – 5.000.000 Euro

Below a graph for the amount of taxes you will pay based on what state you are buying the property in. The basis is a purchase price of 5 million euros.

Plots, apartments & house in Germany. Classical or exotic: Which property is suitable as an investment? The interview: Real estate as a capital investment. In our city analysis you will find clues as well (see below).

Tip from the real estate agent: You want a purchase price for comparison? Before you evaluate your real estate , use apps from real estate portals. Here you can simply track your location with GPS and the app will show you purchase prices and comparison offers in your area. The fast way to a first, rough evaluation of your property.

Price: Rent, buy, living

Renting, buying, living. Here you will find more information about the population, rental prices and purchase prices in the individual cities:

• Buy and rent: Berlin
• Buy and rent: Düsseldorf
• Buy and rent: Frankfurt
• Buy and rent: Cologne
• Buy and rent: Hamburg
• Buy and rent: Hanover
• Buy and rent: Munich
• Buy and rent: Stuttgart

Tax optimization: Procedure and Knowledge Build-Up

Topic Taxes. This brings us directly to the topic of optimizing taxes. Knowledge about finances and taxes is absolutely essential when buying your first property. Understanding taxes is important, because this is how you can convert taxes into private assets.

How does it Work? An Example for Real Estate Investors

In the case of real estate, for example, this involves lifting platforms for duplex parking spaces. So lifting platforms, where you get e.g. two cars on one parking space. They have a shorter depreciation period. Here, depreciation for wear and tear applies, distributed over the actual useful life, deductible according to the official lists of the Ministry of Finance. Exception expenses up to 800 Euro – without VAT – can be deducted immediately in the year of purchase.

You will of course no longer get such knowledge from your tax consultant. Why should he or she, if he or she knew about it, your tax advisor* would be a millionaire* himself.

Details

More details on optimizing your tax sheet for your real estate can be found in our article on the matter

• German Real Estate Taxes – Saving on your Property Investment