Control when selling an apartment building

Read more here:

• Control when selling an apartment building

Which taxes apply when selling an apartment building?

Selling an apartment building can be associated with significant tax payments. At a glance:

Speculation tax on an apartment building

Also for multi-family homes, the 10-year speculation period (§ 23 EStG) applies. The period begins with the notarized purchase contract. Decisive:

• After 10 years: Capital gain from sale fully tax-free (private individual)
• Under 10 years: The prize is taxed at the personal income tax rate
• Self-Occupancy: For MFH, the 3-year self-occupancy rule applies only to the unit occupied by the owner, not to the entire building.
• Exemption: 600 € per year (§ 23 Abs. 3 EStG) – usually not relevant for MFH sales

Calculation of the capital gain

Formel: Selling price − purchase costs − additional costs − depreciation (depreciation Real Estate Depreciation: Depreciation & Rates) + taxable depreciation amounts

Important: Depreciation already deducted (AfA) is added back to the taxable profit upon sale (AfA recalculation). This significantly increases the effective tax burden.

Commercial Tax: When Does It Apply?

Private individuals who hold real estate as an investment generally pay no commercial tax. The situation becomes risky with the so-called Three-Property Threshold:

• Anyone who buys and sells more than three properties within five years is considered a commercial real estate dealer
• Consequence: All profits – even retroactively – become subject to commercial tax
• Commercial tax: approximately 15 % corporate tax + local surcharge (effectively 30–40 %)
• The 10-year speculation exemption is lost in commercial trading!

Solution: Hold each property for longer than five years or structure ownership through separate GmbHs/holding structures.

Asset Deal vs. Share Deal in the Sale of MFHs

When selling larger multi-family homes owned by a company, there are two sale structures:

Saving taxes: Strategies for MFH sellers

• Wait 10 years: For privately held MFH the simplest way to achieve tax exemption
• Sell in a bad income year: For example, after retirement or in a loss year
• Offset losses: Losses from other property sales in the same year reduce the profit
• Transfer to children before sale: Gift to children in a lower tax class (observe holding periods!)
• Limited liability company structure: MFHs sold within the GmbH structure are subject to only 1.5 % effective tax when retained (§ 8b KStG) — complex structure, tax advisor necessary
• 1031-Exchange Analogue (DE: Reinvestment): No direct equivalent, but tax advisors can delay the tax burden through clever reinvestment planning

MFH Inheritance: Taxes when selling an inherited apartment building

If an apartment building is inherited and then sold, special rules apply:

• The speculation period starts from the deceased’s purchase date – not from the inheritance
• If the deceased bought the MFH more than 10 years ago: Sale after inheritance is tax-free
• If the deceased lived in the MFH themselves (only one unit): The 3-year rule applies to this unit
• Inheritance tax and speculation tax can apply simultaneously – independent of each other
• Exemptions for inheritance tax: 400,000 € (children), 500,000 € (spouse)

Selling property at retirement age

For those who are facing the sale of a property for the first time, today wants to explain the real estate sale, but also two alternatives that you have as a property owner, if you can not yet completely part with your condominium or house. The partial sale and the real estate annuity. In addition, an alternative if it is “only” about liquidity, the mortgage loan.

If you need to sell or need money:

1. Direct sale – Full sale
2. Partial sale – Proportionate, with option for total sale
3. Real estate pension – Full with monthly payment
4. Mortgage loan – financing with credit

In addition, an extra tip on the topic: Bequeath correctly.

Sale of house / apartment – option 1

The final decision would be the direct sale of the property, to a new owner. First of all, let’s talk about the process and then about the question: to sell with or without a real estate agent?

Step by step to the sale

The typical sales process includes (simply explained) 18 steps, divided into 3 phases. First comes the preparation, from the time of sale, through the calculation of the selling price to the exposé.

This is followed by the relatively time-consuming sales phase, starting with the marketing strategy, from personal networks to real estate platforms, through communication with interested parties, the individual credit checks and property inspections. With concrete prospective customers then naturally still the sales discussions and naturally also the negotiation around the final selling price and/or purchase price follow.

Last but not least you come to the sales process, here follows the purchase contract, notary appointment, purchase price transfer and the handover of the property.

• Sell property

Checklist in 18 steps

The 3 phases in the sale of real estate

1. Preparation: prepare property and sale
1. Financial planning and timing of sale
2. Hire real estate agent
3. Records and documents
4. Increase real estate value
5. Determine offer price
6. Create exposé
2. Sales phase: market property and find buyers
1. Market real estate
2. Contact with prospective buyers
3. Filter and select prospective buyers
4. Credit check
5. Viewing dates
6. Sales talk & purchase price negotiation
3. Sales processing: purchase contract until handover
1. Draw up purchase contract with notary
2. Notary appointment
3. Land register entry and payment processing
4. Handover of the property
5. Notary fees & broker commission
6. Pay taxes

Sell with or without a broker?

Without experience in real estate sales, you should resort to the expertise of a real estate agent. As you can see in the sales process, you need time, documents, but also knowledge, e.g. around the credit check of possible prospective customers, so that you do not carry out 30 inspections, which lead to no sold result. In addition it concerns factors such as the real estate evaluation in addition, the care of the advertisements and the Exposés. In addition, there is the emotional burden for one or the other.

As stated initially, if you can’t completely part with your condo or house yet, there are alternatives.

Partial sale: Proportionate sale / right of residence – Option 2

In the case of a partial purchase or partial sale of your property, you have the advantage that you remain the sole occupant and user of the property. The so-called “usufructuary right” means that you have the sole right to live in and use your property despite being the new part owner.

How does the partial sale work?

At the same time, you sell part of your property to a finance company. The finance company thus becomes a co-owner of your property. Financial companies buy shares in pretty much any type of real estate, whether land, condominium, house, apartment building or even commercial and special real estate. The share sold is then usually between 10% and 50%.

Often, in addition to the sold part, a complete sale is discussed directly, which is then completed in 10 years, 15 years or 20 years.

• Partial sale

Quickly described:

• Financial company buys shares of the property
• FU becomes part owner; you have sole right of residence / use
• For this you pay user fee (monthly)

User fee accrues (quasi rent)

In the case of partial sale, you should pay particular attention to the conditions. Explained quickly: Annually, you pay back between 3% and 5% of the amount that was sold pro rata. The so-called user fee. Compared to a mortgage loan that you could also take on your property, 2% to 4% more, because with the mortgage loan you would currently pay only about 1%.

Comparison partial sale / mortgage loan:

• Partial sale: min. 3% – 5% p.a.
• Mortgage loan: currently 1% p.a.

p.a. = per year

Why do some nevertheless opt for the partial sale? The sale to a financial company is relatively quick, no credit check, quick purchase price transfer, especially in case of liquidity shortages in old age, a quick alternative.

Partial sale summarized:

• You sell a part of your property (usually 10-50%)
• Partial purchase house: Yes
• Partial purchase apartment: Yes
• Partial purchase of land: Yes
• Financial company becomes part owner
• You remain the sole user of the property
• You pay monthly usage fee
• Total sales in X years (optional)

10% – 50% sell with option 2: partial sale.

Real estate pension: sale / right to live – option 3

The real estate pension is especially interesting for people who have already reached a higher age, usually from 70, 75 years.

Real estate annuity means: You sell your property (directly) completely, but retain a lifelong right of residence and use. In addition, you receive a small monthly amount. For some, this is a good solution. Because you also no longer have anything to do with maintenance costs, the new owner takes care of that.

Compared to the partial sale, you are relatively carefree in your old age. Let’s summarize the real estate pension once again in brief.

• Real estate pension

Real estate pension simply explained:

• Direct, complete sale
• Lifetime right of residence and use
• Small, monthly “extra pension” from the seller
• No maintenance costs

Carefree old age, in your own property:

Mortgage loan: Liquidity only? – Option 4

Finally, option number 4: If liquidity is the only issue for you.

If you want to sell your property in old age, due to liquidity shortages, a mortgage loan is recommended instead of sale. Such a mortgage loan is significantly cheaper than, for example, the user fee for a partial sale. You also remain 100% owner of the property, without giving shares to a part owner.

Get advice from your local bank and 2, 3 alternatives if necessary.

Extra tip on the topic: Inherit correctly

You still have children, grandchildren, close relatives or other persons to whom they have been bequeathed their real estate? Then it is worth thinking about the earth early! On the one hand you can save taxes, on the other hand you can still experience the joy of giving.

Inheritance in advance: Taxes & Co.

Tip. Before it is too late, talk to your parents and grandparents about the inheritance early on. After all, an early inheritance can save you quite a bit, especially on taxes. Learn more about early inheritance here:

• Bequeath correctly

For heirs:

• Inherit correctly

Inheriting correctly also often means preventing disputes among children.

Take care!

Roof slope at a glance

• Sloping side walls
• Limited usable area is only partially included in the calculation of living space
• Color effect for visually larger appearance
• In English: “roof sloping”

Here you can see the construction of a smart wardrobe solution for a room with a sloping roof.

Back to the wiki: Real Estate