Taxes on Real Estate Sales in Germany

Do you have to pay taxes when selling property in Germany? If so, how much? Are there ways to avoid additional fees? This article aims to clarify everything so that you are optimally informed and can plan the sale of your apartment, taking all important factors into account. So let’s get to the subject – taxes on selling a house in Germany.

Capital gains tax on the sale of real estate – Who has to pay?

If you decide to sell property in Germany, you may be required to pay the capital gains tax. This applies to all transactions conducted within 10 years of purchase that resulted in a profit. The time span since the acquisition of the house or apartment and the type of usage are crucial in determining the tax liability when selling real estate.

Tax-free property sale – When is it possible?

A tax-free sale of an apartment or property is possible if you have used the property exclusively for your own residential purposes. If you have continuously used the house you intend to sell for your own residential purposes, there is generally no tax liability.

Even after the ten-year speculation period has expired, no taxes are due on the sale, regardless of whether the property was rented or a profit was made. However, it must be a private disposal transaction and not a commercial property trade. In this case, the sale is not treated as a commercial activity for tax purposes, so no additional charges are incurred.

How much is the tax on selling a house?

The amount of tax on selling a house depends on the profit achieved from the investment, other income sources, and your income tax rate. It is easiest to calculate by determining the net proceeds (the difference between the selling price and purchase price, taking into account selling costs) from the real estate transaction and then multiplying it by your individual income tax rate.

There are various ways to reduce sales profits by deducting certain expenses, which helps to lower the tax on selling a house. Here are some factors that can be deducted:

• Modernization and renovation work – if they exceed 15 percent of the building’s acquisition costs.
  ● Expenses for extensions – if they were made within three years after purchasing the property.
  ● Disposal costs – all expenses incurred during the sales process (broker fees, newspaper ads, travel and phone costs, penalties for prepayments, renovation costs after ending usage as an owner, notary fees, and land registry costs).

Taxes and commercial real estate sales

The rules and calculations described above apply exclusively to private properties and private transactions. For a higher number of transactions, the income is subject to trade tax – the limit for this is three property sales within five years. In this case, it is a commercial sale of land and real estate, requiring registration in the commercial register.

The amount of trade tax depends on the profits achieved – the basic tax rate is 3.5% and is adjusted according to the location of the municipality where the business activity takes place. The effective trade tax rate varies depending on the municipality and is usually between 13% and 18% of the profits.

It is also important to note that properties already sold are taxed retroactively if the limit is exceeded and the trade tax is imposed.

Taxes on property sales and inherited apartments

If you receive a property as an inheritance or gift, the same rules as for purchase apply. It should be noted that when inheriting an apartment, you also inherit the speculation period of the previous owner. This means you are exempt from tax if the person from whom you received the property lived there for more than 10 years and you decide to sell it.

It is also important to know that inherited apartments are not included in the limit of three properties, which sets the turnover of commercial properties.

Upon receiving an apartment, you must also pay inheritance and gift tax – the amount of which depends on the family relationship and the value of the property.