Box privilege: save taxes when selling real estate

Nesting privilege: a term worth knowing!

Although I have been using the holding model in the real estate industry for years, I only recently came across the term “nesting privilege”. The bottom line? Only 1.54% tax on real estate sales! If you’re wondering, let me introduce you to the world of real estate holding in this short article.

The taxation of a real estate GmbH

A GmbH is subject to corporation tax, the solidarity surcharge and trade tax, which results in an effective tax rate of approximately 30%.

However, if you set up your GmbH in the context of real estate projects, you can benefit from the extended reduction in trade tax.

In this case, you only pay 15.83% tax on rental income and lease fees.

The same low tax rate also applies to the sale of real estate. However, care must be taken here to avoid falling into the category of commercial property trading. You may sell a maximum of three properties within five years, otherwise the tax rate rises to 30%.

The share deal offers an even more tax-efficient option for real estate sales.

Real estate holding company: Reduce the tax burden to 1.54%

By cleverly structuring your GmbH, you can reduce the tax burden on the sale of real estate to just 1.54%. A little more striking:

1.54% Taxes on sale

This concept, known as a share deal, benefits from a holding structure and the nesting privilege. Your business structure consists of two limited liability companies. One of the companies acquires the real estate, while the second limited company acts as the parent holding company. If you now want to sell your property, the holding company transfers the shares in your real estate GmbH to the buyer.

The nesting privilege comes into play here

If a corporation sells shares in another corporation, 95% of the profits remain tax-free.

This means that your effective tax rate on the profit from the sale of the property is only 1.54%.

More about GmbH & asset-managing GmbH

Learn more about the GmbH here

• GmbH: Simply explained
• Asset-managing limited liability company

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Family foundation: At what point is it worthwhile?

Save taxes, optimize and design, but when is it worth it in a family foundation?

• From when is the foundation worthwhile? Only from 1 million equity capital, so that costs of the foundation and yield are really worthwhile
• Before preferring to work in a corporation (so-called Immobilien GmbH or vermögensverwaltende GmbH, GmbH und Co. KG, etc.), here you will find all legal forms in Germany

Overview: This is what you will learn in the guide

7 aspects to save taxes with the creation of a family foundation.

Take advantage of tax benefits: How you can benefit from a family foundation

You want to optimize your financial situation and save taxes? A family foundation could be the solution. But did you know that you benefit from tax advantages not just once, but several times over? In this article, we will show you how to take advantage of these benefits to reduce your tax burden and secure your assets for future generations.

Multiple tax benefits when establishing a family foundation

When you set up a family foundation, you can benefit from tax advantages in several ways. First of all, you can deduct the transferred capital as a special expense from your taxable income. Individuals have the opportunity to deduct up to 1 million euros within 10 years, while married couples can deduct up to 2 million euros. In addition, you can donate further assets to the foundation and also deduct these donations up to 20 percent of your income as a special expense.

Only 15% corporate income tax (rental income)

Once your assets are in your foundation, you can use and invest the assets you have.

Here’s the kicker. A foundation is subject to corporate income tax. So you pay only 15% corporate income tax instead of trade tax.

You only pay trade tax with a family foundation if it is commercial. However, the mere purchase, management and holding of real estate is not commercial. You are only putting your assets to work.

Even your rental income is now subject to corporate income tax at only 15%.

Real estate transfer to a foundation

Transferring real estate to a foundation also provides an effective asset protection mechanism. By transferring your real estate to a foundation, it is legally separated from your personal assets. This protects them from potential creditors or other financial risks. A family foundation can thus be a valuable security measure to protect your real estate assets from unforeseen events and ensure your family’s long-term financial stability.

• Transferring real estate to family foundation: transfer agreement

Inheritance and gift tax exemption

Another major advantage of a family foundation is that it is exempt from inheritance and gift taxes. By transferring your assets to the foundation, you can avoid these taxes. In addition, the income of charitable family foundations is tax-free, which means that the assets benefit the foundation’s purpose in full.

Taxation of the current income of the foundation

Foundations are normally subject to corporate income tax and, where applicable, trade tax. But tax-privileged family foundations are generally exempt from these taxes. This means that income from donations, asset management and economic activities in the service of charitable purposes are exempt from tax. However, taxes are incurred if income is generated through economic activities that do not serve the charitable purpose.

Tax advantages of the family foundation

The family foundation also offers tax advantages on the income tax side. With a corporate income tax of only 15 percent and the omission of a possible trade tax, you can significantly reduce your tax burden. Capital gains from real estate are treated similarly to an individual, and distributions to beneficiary family members are mostly subject to the 25 percent final withholding tax. If you want to use the family foundation for a holding structure or avoid exit taxation, even further tax advantages await you.

The non-charitable character of the family foundation

It is important to note that a family foundation does not benefit the general public, but rather, in accordance with the foundation’s purpose in the articles of incorporation, benefits you and your family exclusively. Therefore, the comprehensive tax exemptions of a charitable foundation do not apply. Nevertheless, family foundations offer many tax advantages for securing and preserving family assets.

Conclusion: Establish a foundation and save taxes

A family foundation can not only help you save taxes, but also help you secure your assets for future generations and support charitable causes. With multiple tax benefits upon formation, inheritance and gift tax exemption, and tax advantages on the income tax side, the family foundation offers an attractive way to optimize your financial situation. Remember that sound advice from a tax expert is recommended to take into account your individual tax and legal needs and to derive the best possible benefits from a family foundation.

With my experts you will establish your company safely and with all tax advantages.

• Establish a family foundation
• Contact

Of course, you can also transfer real estate to a foundation.

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Speculation period for owner-occupiers

If you have used a condominium yourself and want to sell it, a speculation period of 3 years applies. This means that you can sell the apartment tax-free at any time after buying it, as long as you have lived in it yourself in the meantime. This is an advantageous regulation, as you do not have to adhere to a specific holding period in order to benefit from the tax exemption.

Speculation period of 3 years

Speculation period for capital investment (rented out)

If you have used a condominium as an investment and rented it out, the speculation period is 10 years. This means that you can only sell the apartment tax-free after this period has expired. If you sell the apartment before this period expires, speculation tax could be payable on the proceeds of the sale.

Speculation period of 10 years

Commercial trading in Germany

If the sale of condominiums becomes a commercial activity, the profits from the sale could be subject to income tax. This may be the case if, for example, you regularly buy, renovate and resell apartments with the intention of making a profit (more on the 3-object rule). In such a case, you could be classified as a commercial trader and the profits would be taxable.

Direct intention to make a profit “or” 3 properties in 5 years

Note that tax laws can be complex and individual circumstances need to be taken into account. To ensure that you take advantage of the best possible tax situation for your specific case, it is advisable to consult a tax advis or. A professional tax advisor can educate you on all the tax implications of selling a condo in Germany and help you plan optimally.

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Taxes on the sale of an apartment building

Read more here:

• Taxes on the sale of an apartment building

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Is the sale of an apartment tax-free?

Similar to the purchase of a house, apartment and land, taxes may also be due on the sale. The taxes you have to pay and the amount of tax you have to pay depend on the value of the property as well as on the use of the apartment. Under certain circumstances you can save taxes. The so-called speculation tax plays a major role.

Speculation tax for rental & owner occupancy

As a rule, speculation tax is incurred if a property is resold within a certain period after purchase and was not used as a primary residence. In Germany, this speculation period is generally 10 years. If the sale takes place within this period, the profit generated by the sale is subject to income tax and is referred to as speculation tax.

Tax-free if there are more than 10 years between purchase and sale

If you or your children have lived in the apartment yourself, no speculation tax is due, even if less than 10 years have passed between the purchase and sale. However, if the apartment is a rental property, you should observe the speculation period.

Commercial trade from three-object limit

The three-property limit usually affects real estate dealers and speculators who buy and sell a large number of properties in a short period of time. If a seller sells more than three properties within a five-year period, this may result in the seller being classified as a commercial real estate dealer and thus becoming liable for tax. In this case, the capital gains may be taxed as income, resulting in a higher tax burden.

So, if you have already sold several properties recently, it is recommended that you sell your home only after 5 years to avoid additional taxes.

Taxes on inheritance and donation

But what taxes apply if the apartment is an inherited property? If you decide to sell an inherited apartment, it may well be subject to a speculation period. Here, too, the decisive question is: owner-occupation or rental?

However, a special feature must be taken into account: The start of the speculation period is not the date of inheritance or gift, but the date on which the apartment was acquired by its original owner.

With the inheritance, the speculation period attached to it therefore also passes to the heir

If, for example, you inherit an apartment as a rental property that was purchased 15 years ago, the speculation period is over and you can sell the apartment without having to pay speculation tax.

Conclusion: How to save taxes

In summary, various taxes can be incurred when selling an apartment. The speculation period and the three-object limit play a particularly important role. Special regulations also apply to the sale of an apartment after an inheritance or gift, which require consideration. It is therefore advisable to find out about the relevant tax rules and regulations before selling an apartment and to factor the tax payments involved into your costs.

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