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Avoid speculation tax on house sales
Avoid speculation tax on house sales

Video: Avoid speculation tax on house sales

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Video: Pros and cons of the speculation and vacancy tax | Housing Matters | Vancouver Sun 2023, January
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If there is a house sale or someone wants to sell an apartment, the so-called speculation tax may have to be paid. Read here when this is due, how high the speculation tax is and how it can be avoided.

Table of Contents Table of Contents Speculation Tax for Real Estate: Home Sellers Must Know

  • What is the speculation tax?
  • When does speculation tax apply?
  • What deadlines apply?
  • How much is the speculation tax?
  • How can one avoid or lower the speculation tax?
  • Speculation tax: calculate the amount yourself
  • For which objects is speculation tax also due?

Table of Contents Table of Contents Speculation Tax for Real Estate: Home Sellers Must Know

  • What is the speculation tax?
  • When does speculation tax apply?
  • What deadlines apply?
  • How much is the speculation tax?
  • How can one avoid or lower the speculation tax?
  • Speculation tax: calculate the amount yourself
  • For which objects is speculation tax also due?

If you want to sell a house, a plot of land or an apartment, you not only have to do a lot of work - there are also costs. For example, the broker may have to be paid, under certain circumstances a prepayment penalty is due at the bank and the tax office also holds hands: Because even a house sale is subject to a certain tax. Specifically, it is about speculation tax, which can significantly reduce the profit to be made on the sale.

What is the speculation tax?

In Germany, speculation tax is levied in accordance with Section 23 of the Income Tax Act if scarce goods, the value of which can increase sharply, are sold at a profit. This also includes real estate.

However, it only arises if a certain period, the so-called sale or speculation period, falls short of after the purchase, i.e. the objects are sold again before a specified time. When selling a house or selling an apartment or land, it depends on the type of purchase and the type of use. The speculation tax is calculated on the basis of the profit made on the sale, i.e. the purchase and the sale price for the assessment of the tax are compared.

The formally correct term for the colloquially called "speculation tax" is "income tax on the sales profit from private sales transactions acc. § 23 EStG”.

When does speculation tax apply to real estate?

The seller must always pay the speculation tax when selling a property if a certain period of time has not been met between buying the house and selling it. Because then the legislator assumes economically motivated buying and selling - he assumes that the house, the property or the apartment was acquired solely for the purpose of making a profit - and levies taxes on the profit achieved.

If a person sells more than three properties within three years (three-property limit), commercial trade is also assumed. Trade tax is then also payable, if applicable. Likewise, it is to be assumed here that the house sale will be profitable and that speculation tax will apply after the sale.

What are the deadlines for speculation tax on real estate?

When it comes to the deadlines for speculation tax, a distinction must be made between various cases when selling a house or selling an apartment or land:

1. The property was inhabited itself

If the owner of the house or apartment has lived in the property himself, the speculation period is three years. The owner must therefore have lived in the property for three consecutive years. It is essential, however, that it does not have to be full calendar years! If the property was bought in December 2019, it can be sold again in January 2021 without speculation tax on the profit made.

This speculation period also applies if the apartment or house was not occupied by the owner himself but by his children, for whom he still receives child benefit.

Familie im Wohnzimmer
Familie im Wohnzimmer

It is best to live in your own four walls. If you still have to sell your house, you shouldn't do this before three years have passed - otherwise speculation tax will apply.

Photo: iStock / fizkes

2. The property was not inhabited itself

If the house or apartment was not used but rented, the sale period is ten years. The specific purchase and sale dates apply, which are noted in the notarized sales contract. The speculation period begins on the day after the contract is signed. Speculation tax applies if there are less than ten years between the purchase and sale of the property.

Special cases: If an apartment is first used and then rented out, the ten-year speculation period applies. If it is first rented and then lived in, it can be sold without speculative tax after three calendar years of personal use.

3. The property was only partially inhabited

If, for example, a house is to be sold that was not fully inhabited, but was partially rented, speculation tax only has to be paid for the portion that was not lived for at least three calendar years in a row. If the entire property was owned for more than ten years, no speculation tax is payable.

4. The property was transferred through separation of property

If, after divorce, one of the previous spouses is assigned the property as the sole owner through a separation of property, he must pay speculation tax if he sells the house, property or apartment within the next ten years. It is essential here that the speculation period no longer begins on the day after the purchase date. Rather, it starts on the day after the transfer of ownership to the spouse, i.e. again from zero.

However, if the former spouse moves in or stays there, he can sell the property without speculative tax if he lives in it for at least three calendar years in a row.

5. The property was acquired for a business task or removed from business assets

Here, too, the speculation period of ten years applies if no speculation tax is to be paid. In the case of personal use, the usual three calendar years have started.

6. The property was inherited or given away

If the house, the property or the apartment is transferred to a new owner through inheritance or gift, the sale period begins on the day on which the deceased or donor bought the property. If it is sold before ten years have passed since that date, speculative tax will apply. Unless the heir or gift recipient lives in the property three consecutive calendar years in a row, the sale is exempt from speculation tax.

Important: In the case of inheritance or gifts, inheritance tax or gift tax may also be levied if the applicable allowances are exceeded.

Testament
Testament

Speculation tax also applies to properties that are inherited and resold within ten years.

Photo: iStock / nobtis

How much is the speculation tax?

The seller's individual income tax rate is used to calculate the speculation tax on property sales. The amount of the speculation tax is therefore different in each individual case and cannot be named as a lump sum.

Regardless of the personal tax rate, it is important in the calculation that only the profit made on the sale is subject to tax, not the maximum price of the property on the sale of the house.

How can one avoid or lower the speculation tax?

You can lower the amount of the speculation tax quite legally if you correctly calculate the profit made on the sale. This is done by making all allowable deductions from it. However, many property sellers ignore all sorts of points here and ultimately pay more taxes than necessary.

You should consider these expenses when calculating profits:

  • Costs for the broker when buying and selling
  • Notary fees
  • if applicable, prepayment penalty of the financing bank
  • Renovation work for sale
  • Renovation work within the first three years after the purchase of the property (these count as acquisition costs and as such may be deducted from the profit)
  • Advertising costs for the sale (e.g. advertisements on the Internet, printed exposés)
  • Real estate transfer tax
  • Cost of entry in the land register
  • if necessary, proportionate private use of the property

Please note: Any tax depreciation for rented real estate must be added to the profit.

You can avoid the speculation tax on property sales entirely if you keep to the speculation deadlines or do not exceed the tax exemption limit for the profit of 600 euros per year. In view of the steadily increasing prices, however, this will hardly be possible with a property sale.

Speculation tax: calculate the amount yourself

Anyone can easily calculate the speculation tax themselves. As an example, a property that has been rented and sold eight years after the purchase is to be assumed here.

Two percent of the purchase price of the commercial property was written off annually as a deduction for wear and tear (depreciation) from the tax (i.e. 8x8, 000 euros = 64, 000 euros). When it was bought, it cost 400, 000 euros and is now being sold for 500, 000 euros.

Sales price 500, 000 euros
- purchase price 400, 000 euros
- Acquisition costs (broker, notary, land register entry, Real estate transfer tax, etc.) 34, 280 euros
- Renovations for sale 5, 000 euros
- Advertising costs for the sale 200 euros
- Realtor when selling 14, 280 euros
+ depreciation claimed for tax purposes 64, 000 euros
taxable profit 110, 240 euros
personal income tax rate (e.g.) 40 percent
Amount of speculation tax 44.096 euros

In order to calculate the amount of the possible speculation tax before the property is sold, the realizable market value of the property must be known.

For which objects is speculation tax also due?

The state not only levies taxes on real estate, speculative tax is also payable on these properties under certain conditions:

  • Works of art
  • Precious metals and gemstones
  • Jewellery
  • Coin and stamp collections
  • Antiques
  • Antique car
Antiquitäten
Antiquitäten

Speculation tax may also be levied on antiques and works of art.

Photo: iStock / KatarzynaBialasiewicz

However, this only applies to these goods if there is a short time between purchase and sale. For works of art, precious metals and gemstones, jewelry, coin and stamp collections, antiques and oldtimers, this is one year. After that, the sale is exempt from speculation tax. Until 2009, this tax also applied to the sale of shares. However, this was replaced by the flat-rate tax.

Nadine Kleber

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