The value gain tax
What is the value gain tax in Germany? How is it calculated? How can I bypass them?
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What is the speculation tax?
Private sales of assets that generate profits are subject to a tax in Germany. When real estate is sold, this tax is called the ”speculation tax“. Real estate includes undeveloped land, freehold flats, houses, shares in buildings, shares in closed-end real estate funds, leasehold rights and rights equivalent to real property. The profits are attributable to price increases in the property. The attempt to profitably exploit this price increase is an economic activity and therefore linked to taxes. The speculation tax is based on sections 22 and 23 of the Income Tax Act and applies under certain criteria.
Calculation of the value gain tax on the sale of a condominium or house
The following section deals with the amount and calculation of speculation tax (value gain) for the sale of real estate in Berlin.
If you want to calculate the value gain tax, you must determine the actual profit that you are making by selling your property in Berlin. This is calculated as follows:
Sales price – acquisition costs (including build and repair costs) – costs of sale = actual profit
The personal tax rate applied to the actual profit is the amount of the speculation tax.
Calculation of speculation tax on the sale of a condominium in Berlin:
Selling price: €300,000
– Acquisition costs:
-purchase price: €250,000
-additional purchase costs (property tax, notary, agency fees etc.): €37,000
– Sales costs (advertisements, cosmetic repairs, notary, land register fees, etc.): €7,000
= actual profit: €6,000
Personal tax rate: 40%.
-> tax to be paid: €2,400
When is the speculation tax due on a property sale in Germany?
Speculation tax in Germany is levied on a profitable sale of real estate. That includes: Leased real estate, real estate that has been transferred free of charge to third parties (see“Special cases” for more information) thatwas intended for commercial or professional use or vacant real estate.
The speculation tax is not payable outside the speculation period and for own requirements. The speculation period for real estate is 10 years. This means that a profitable sale of a house or condominium is tax-free if there are more than 10 years between the purchase and sale of the property. The date shall be the date of the notarised purchase and sale agreement. In the case of the purchase of a plot of land on which a property will later be built, the date of purchase of the plot of land applies. Commercial real estate is an exception to the 10-year period.
Another exception is own use. If the property is occupied by the seller himself, no speculation tax has to be paid. However, this only applies if the seller lived in the property for at least the sales year and two years before. Since 2017, the speculation tax on holiday homes and secondary residences has also not applied. The prerequisite is that the seller could live in the property at any time and that the property was not rented.
Avoidance of speculation tax
Since the value gain tax in Germany on the sale of a house or condominium can mean a large sum of money, it is advisable to go through the avoidance options. That includes:
Compliance with the 10-year limit
If you own the property for more than 10 years, there is no speculation tax. Therefore, it may make sense to keep the property in Berlin for some time and sell it outside the time limit.
Another option is own use. If you live in the house or condominium at least in the sales year and 2 years before, the tax does not apply.
Habitation by children
If your children live in the property for the necessary period, the speculation tax may be avoided. Please note: This only applies if your children are studying or in education and are still receiving child benefit. Other family members do not count.
Sale/transfer of the house / condominium to family members / children
Sale of your property to family members or your children is subject to the same speculation tax criteria. There is no speculation tax on transfers, as there is no acquisition cost for the new owners and no profit for the sellers. If the new owners sell the property, the 10-year period and the owner-occupation refers to the persons who have acquired the property.
Example:If you live in your property for 7 years and transfer it to your children, they would have to live in the property for another 3 years. Then the property can be sold outside the speculation period.
If you inherit a property, the speculation tax only applies to a sale of the inherited property. If the property was previously in the possession of the testator for 10 years and was inhabited by the testator for the time required, no taxes are payable. Otherwise, you must still own the property for the rest of the 10-year period or live in the property yourself for the time required. However, if the inheritance shares are paid out, the periods start anew, as there are acquisition costs here. Income tax may be reduced in the event of double taxation through speculation and inheritance tax (section §35b).
Tips for selling real estate with speculation tax
The speculation tax to be paid is reduced by specifying and deducting certain costs in the tax return. So, you can indicate not only the purchase price, but also the ancillary purchase costs. This includes notarial or land register costs. You can also take into account the losses on disposals shown in the sample calculation. This refers to losses on private sales that took place in the accounting year. Not only the acquisition costs, but also the selling costs reduce the actual profit and thus the speculation tax. Modernisation costs can be deducted if they were incurred in the first three years of ownership and amount to more than 15% of the acquisition cost (less VAT). However, the modernizations must not have been carried out by you.
Await value appreciation
Check the time of sale in detail. Should the house or condominium increase in value in the coming period, it makes sense to wait with the sale. Within the 10-year period you still have to pay the speculation tax but make more profit on the sale.
Take good care of your property while you own it. Because a well-kept property achieves a higher selling price with a sale.
When does it make sense to sell real estate with speculation tax?
In order to calculate the speculation tax to be paid and your profit on the sale of real estate with speculation tax, a precise estimate of the sale price is important. Only then can you assess whether a sale is worthwhile at the current time.
Our real estate agency evaluates your house or condo precisely and free of charge, so that you can be prepared for the sale.
The information published on our website is all written and checked by experts with the greatest care. However, we cannot guarantee its accuracy, as laws and regulations are subject to constant change. Therefore, always consult a tax expert in a specific case – we will be happy to put you in touch.
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