House sale: When the state earns a share and when not

If you want to sell your property, you usually have to pay tax on the profit. But the tax is not always due and can be avoided legally. How this works is explained by tax expert and former presiding judge at the tax court, Hans-Joachim Beck, who answers all our questions about taxes when selling a house in an interview.

Interview by Julia Ceitlina

Mr. Beck, most people know that a tax is due when buying a house. But what about when you sell a property, do you also have to pay a tax?

Hans-Joachim Beck: There is a special paragraph in the Income Tax Act which states that the sale of real estate held as private property is taxable if there is no more than ten years between acquisition and sale. This is the so-called "speculation period". It is not a special tax and there is no special tax rate or reduction. If the property is occupied by the owner himself, the profit does not have to be taxed.

When does the ten-year speculation period begin?

With the notarized contract of sale.

How is a distinction made between owner-occupied property and property used by others?

In the case of a single-family home, for example, which I live in myself, the sale is tax-free even if I sell it within the ten-year period. The prerequisite is that I have lived in the property myself for the entire period between acquisition and sale, or that I have lived in the property myself without interruption in the year of sale and in the two preceding years. These do not have to be full years. For example, if I sell my single-family home in May 2018, I must have owner-occupied it since at least the end of December 2016. Real estate agents often tell their clients the phrase: You must have spent at least two New Year's Eve's in it.

Are there any other instances when tax is due on the sale of a home?

Yes, if, for example, the sale of real estate is commercial.

At what point is the sale of real estate considered commercial? Can you explain this with an example?

I need to sell three census properties within 5 years. Counting properties are properties that I have purchased or upgraded within the last ten years. Example: I have owned an apartment building for 15 years. Now I divide it into condominiums and sell 20 condominiums. I have then sold more than 3 "properties". However, there is still no commercial property trading because I have owned the property for more than ten years. However, if I have modernized this property during the last 10 years, then it is commercial property trading.

So by modernizing it is as if you "bought the property new"?

Yes, from the moment of modernization, the period starts again.

Then it would be unfavorable to modernize the property before selling it?

But people still like to do this because it makes the property easier to sell. You just have to clearly weigh up the financial advantages for yourself and see whether modernization is really worthwhile. Modernization is any measure that I, as the landlord, am not obligated to do under rental law and that makes it easier to sell.

On what factors does the amount of tax depend?

The speculation tax is not different from the normal tariff tax, as many think. It is simply a fact within the income tax and the profit is added to the normal, ordinary income. However, the capital gain also drives up the progression rate, i.e. the tax rate for the normal income, since everything is taxed together.

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Left: Photo: © JSB - Fotolia

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