Speculation tax simply explained

The name says it all, this tax is intended to limit speculation in the real estate market. Therefore, the legislator says: If you buy a property, you can only sell it tax-free after X years. X = years differ depending on whether you bought the property as an investment (rent) or live in it yourself (owner occupation).

Profits over 600 euros (tax-free amount, EStG § 23) must be declared in your tax return. You enter the profits in the annex “Other income”.

Let’s get back to the Frist difference.

Distinction: renting (capital investment) / own use

The speculation period differs depending on whether you buy a property as an investment to rent it out. Or whether you buy a property for your own use, i.e. you live in it yourself.

Speculation period:

• Third party use – 10 years
• Self-interest – 3 years

Speculation tax only applies to private sales

The tax can be found in the Income Tax Act (EStG), §22 Types of other income, more precisely in §22 paragraph 2: “Income from private sales transactions within the meaning of § 23;” – so it is a tax that is levied only on private sales.

The law:

• § 23 Private sales transactions – external

If you sell commercially, you are taxed differently. Therefore, you should also know the 3-object rule. It states that who sells 3 properties within 5 years, falls under the commercial real estate trade.

Example: Time limit for capital investment / personal use

Directly two more practical examples on speculation tax.

Speculation tax capital investment

Speculation tax applies – you buy a property at the age of 42, rent it out and sell it at the age of 50, then you have bought and sold the property within eight years. Accordingly, speculation tax is incurred.

• < 10 years held = speculation tax

Speculation tax does not apply – you also buy your property at the age of 42 and sell part of it at the age of 53. So there are more than 10 years between the purchase and sale of the property. Accordingly, no speculation tax is incurred.

• > Held for 10 years = No speculation tax

Speculation tax self-interest

In the case of personal use, the time periods change to a period of 3 years. Everything else remains the same, including the amount of speculation tax.

Speculation tax amount

Now to the most important question, what is the tax on the sale?

What is the speculation tax?

There is no fixed tax rate for speculation tax. Your tax office calculates the amount with your respective tax level.

Own income tax rate at 40%

• Profit from sale: 20,000 euros
• Speculation tax (40%): 8,000 euros

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Loans at a Glance

• A larger amount of borrowed money
• Real estate purchases are often financed by loans
• Interest payments must be made when a loan is repaid
• Commercial banks often require equity capital as a prerequisite
• Private loan: Low interest rates and no credit check

Owners’ association at a glance

They hold regular owners’ meetings to discuss common issues that affect all residents of the house, such as exterior design of the house and property, garden maintenance, fees and service charges, renovation or refurbishment of common property such as basements or the roof, a common property management or a caretaker service. However, an external property management company can also be requested for these tasks, for a fee.

• Syndicate
• Regular owners’ meetings to clarify common issues
• Can also be requested external property management

Double glazing at a glance

• A building element consisting of two glass panes
• Installed in a plastic or wooden frame
• Cavity filled with inert gas as thermal insulation
• Energy saving and sound insulating
• In rare cases: Triple glazing
• Costs: from 80€ per window

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Uniform facade design at a glance

• Owner or homeowners’ association sets rules & decides on changes
• Harmonious & uniform appearance is to be ensured
• Old towns – particularly strict regulations

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