Speculation tax and speculation period: then the sale of real estate becomes expensive

Speculation period, speculation tax, selling real estate, Photo: iStock/YakobuchukOlena

Rich profits from real estate speculation – the taxman wants to make a profit. At least if less than ten years have passed between purchase and sale. Who observes important deadlines, however, leaves the tax office empty and for owner-occupiers applies: It is only in exceptional cases a speculation tax is due.

In the near future

Speculation tax is incurred if:

  • an owner resells a property, which he did not use himself, within ten years and makes a profit in the process.
  • a property is first inherited and then sold at a profit within ten years of purchase.
  • a property is sold at a profit within ten years and was only partially owner-occupied. The tax is then levied on a pro rata basis.

No speculation tax is due if:

  • a property was owned for more than ten years when it was sold.
  • a property has been used by the owner himself for at least two years and the fractional year in which it is sold.

What is the speculation tax?

The term speculation tax is outdated, what is meant is the taxation of profits from private sales transactions (§ 23 EStG). It is important that it is an asset such as a property. The background to the tax is that when the property was purchased, the short-term increase in value of an asset was – speculation. The speculation profit is added to income for income tax purposes.

A graphic depicting the speculation tax. Graphic: immowelt

The figure shows when speculation tax is paid, and when not. Graphic: immowelt

When does speculation tax apply?

Speculation tax is always due when a property that is not owner-occupied – i.e. usually rented out – is sold within ten years a property is sold again after the purchase and a profit is made in the process. If a property has been owned for more than ten years and is then sold, no speculation tax is generally due.

Do owner-occupiers have to pay speculation tax??

No. If an owner-occupied property is sold within the ten-year period, no speculation tax has to be paid. This applies even if a property the property was initially rented out and then used by the owner for at least two years plus the year in which it was sold.

But if a property is initially owner-occupied and subsequently rented out, speculation tax is due in case of sale within the ten-year period.

For the calculation of the ten-year speculation period, the date of the notarized conclusion of the contract counts and not the date when the change of ownership was registered in the land register.

Is there a speculation tax for partially owner-occupied real estate?

Speculation tax, study, Photo: gpointstudio / iStock.com

Those who use a study in their own property for professional purposes may pay speculation tax on a pro rata basis when selling it. Photo: gpointstudio / iStock.com

If a property is partly used by the owner and partly rented out, the speculation tax is only due proportionally. Example: If, in a two-family house, 60 percent of the living space is allocated to the owner-occupied apartment and 40 percent to the rented apartment, a speculation gain of 100.000 Euro only 40.000 Euro to be taxed. By the way: Even for a study, which is claimed for tax purposes during the period of use, the speculation tax accrues proportionally according to these standards. If, for example, the area of the study corresponds to ten percent of the total area, then ten percent of the profit is taxable.

Is there speculation tax on inherited real estate??

If you inherit a property or receive it as a gift, you may have to pay speculation tax when you sell it. With regard to the speculation period, however, it depends on when the testator or donor acquired the property and not when the gift was made. An example: The decedent acquired on 1. February 2014 a rented property and died in 2016. If the heir now sells before the 2. February 2024 the property at a profit, so he pays the speculation tax.

Speculation tax on sale of vacation property

Even if you have a Vacation home sells at a profit within the ten-year period must pay speculation tax. In the case of a Second home speculation tax is incurred if this apartment was not acquired for professional reasons, but for recreational stays, ruled the Tax Court of Cologne (Az.: 8 K 3825/11).

Speculation tax, vacation home, Sylt, Photo: cinoby / iStock.com

Self-used vacation homes are not exempt from speculation tax. Photo: cinoby / iStock.com

If you are a trader and, for example, transfer a company property to your private ownership due to the closure of a business, you must bear in mind that the 10-year period does not start to run until the date on which the property is transferred to private ownership. The value on the day the land is transferred from the company to the private person is then considered the acquisition value.

Sale at a loss can reduce taxes in the future

Anyone who sells a property within the speculation period not at a profit, but at a loss, can claim this for tax purposes – but only within limits. Because this does not simply reduce the income. The losses can only be offset against other capital gains. If there were none, the losses can be carried forward to the future within the framework of a so-called unlimited loss carry forward. This means that if, for example, another property is sold at a profit within the speculation period a few years later, the losses can be offset against that profit.

How to calculate speculation tax?

To find out how high the speculation tax is, the sales profit must first be determined. The profit is not only the difference between the cost of acquisition and the proceeds of sale. AfA used during the holding period is also virtually reversed. Accordingly, the gain is calculated as follows:

Profit = (proceeds of sale + depreciation – costs of sale) – (purchase price + incidental purchase costs + expenses)

Example calculation for the determination of the speculative profit

sales proceeds: 620.000 euros
Original purchase price: 500.000 Euro
+ subsequent production costs 20.000 euros
+ Incidental costs (notary, land transfer tax) 50.000 euros
./. claimed depreciation 40.000 Euro
Purchase/manufacturing cost: 530.000 euros
costs of sale:
Direct disposal costs (advertisements, notary, broker, land register, etc.).) 30.000 euros
Early repayment penalty bank loan: 15.000 euros
Debt interest for vacant periods: 3.000 euros
Renovation costs sales preparation: 7.000 Euro
Total costs of sale: 50.000 euros
speculative profit:
(620.000 euros ./. 530.000 euros ./. 50.000 euros :) 40.000 euros

Accordingly, the reversal of the depreciation for wear and tear (AfA) can result in a taxable profit even if the proceeds from the sale are lower than the purchase price originally paid.

By the way: costs for renovations incurred within the first three years after acquisition can be added to the acquisition costs and thus reduce the speculative gains on a sale within the 10-year period. Renovation costs incurred in the course of the sale can also be taken into account.

Speculation tax, speculation period, apartment building, 10 years, Photo: Adrian v. Allenstein / Fotolia.com

Costs for renovations incurred within the first three years after acquisition reduce the speculation gains in the event of a sale within the ten-year period. Photo: Adrian v. Allenstein / Fotolia.com

Capital gains are added to income in the year of sale and are then assessed at the individual income tax rate. Thus, if the seller has a gross income in this year of 50.000 euros and an additional speculative profit of another 40.000 Euro, his taxable income in that year amounts to 90.000 Euro. Because of the tax progression, he will therefore have to reckon with a considerably higher claim from the tax authorities.

Avoid or save speculation tax?

If you do not want to pay speculation tax on your rented property, you must wait for the ten-year period, or use the property yourself for a period of at least two years and until immediately before selling it. However, one can save with the taxman if costs such as renovations or brokerage fees are credited to the purchase price. The date of the notarization of the two purchase agreements is used to calculate the speculation period.

Conclusion: Better to talk to a tax advisor

Who waits with the sales of a not own-used real estate more than ten years from purchase date, speculation profits in arbitrary height can collect. If, however, the property is to or must be sold before the expiry of this period, it is advisable to seek detailed advice from a tax advisor – otherwise nasty surprises in the form of high tax demands could be imminent.

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