Speculation tax on property sales - What you should know

What exactly is speculation tax for real estate and when does it apply?

"Speculation tax" describes the taxation of profits from private sales transactions. Accordingly, the income generated by the sale of a property must also be taxed. The amount of tax to be paid depends on the total income of the property seller in the year of the property sale. The good news: under certain conditions, speculation tax is not applicable and you save a lot of money!

In principle, the profit from the sale of a property only has to be taxed if the property is sold within the so-called speculation period of ten years. This means that if the land, apartment or house is sold at a profit within ten years of purchase, speculation tax is payable. The date of the original notarized purchase contract for the property is used to calculate the ten-year period.

An exception is the sale of continuously owner-occupied properties - this is tax-free even if the 10-year period is not reached. Continuous owner-occupation of your apartment or house exists if you have lived in your property yourself in the year of the sale and in the two previous years before the sale.

Speculation tax on donated or inherited real estate

When you inherit or receive a house, apartment or property as a gift from a loved one, you are often faced with the difficult question: what should happen to my property in the future? The decision to sell the gifted or inherited property is often not just an emotional challenge. You should also definitely take into account any speculation tax that may be due when making your decision.

Speculation tax is also payable on a gifted or inherited property if the sale takes place before the end of the ten-year speculation period. However, it is important to understand that the date of the original purchase by the donor or testator is used to calculate the expiry of the speculation period. This means that the speculation period does not start anew with the gift or inheritance! If the purchase by the donor or testator was more than ten years ago, no speculation tax is due. This also applies if the apartment or house was used in the year of the gift or inheritance and in the two calendar years before.

Speculation tax on divorce

Divorce brings with it many emotional and organizational challenges. It also takes up a lot of time and energy. A joint property and the question of what to do with it is one of the most difficult problems for spouses to solve.

In principle, the joint property can also be sold tax-free after the speculation period of ten years has expired. If the speculation period for real estate has not yet expired, the spouses can still sell their house or apartment tax-free in the year they move out if they have lived in the property for the previous two years. In this case, it is essential to complete the sale in the year of moving out in order to avoid the speculation tax liability.

How to calculate the speculation tax on your property

The level of taxation depends on the following factors, among others:

• Amount of the capital gain
• Other income
• Average personal tax rate

In addition to the taxation of the profit, the total income is usually also higher in the year the property is sold. This results in an increase in the average tax rate in the year of assessment, which leads to a higher tax burden for the total income. We have provided you with a simplified calculation example so that you can gain an initial insight into how speculation tax is calculated:

Example calculation speculation tax

You are selling a flat that you inherited from your aunt. Your aunt bought the flat five years ago for 500,000 € and has rented it out since then. The buyer pays you 700,000 €. Your personal tax rate is 35%. Since you sold the property within the ten-year speculation period, you have to pay tax on the profit from your private sale transaction as follows:

Speculative profit = sales price - purchase price = € 700,000 - 500,000 = € 200,000

An average tax rate of 35% results in the following speculation tax:

Speculation tax = 200,000 € * 35 % = 70,000 €.

Reduction of the speculative profit

The simplified calculation example does not take into account the factors that can reduce your tax burden if you are liable to speculation tax. The taxable amount is reduced by the costs that you had to incur for the sale of the property. These include, for example:

• Brokerage fees
• Advertising costs
• Notary fees for the cancellation of the land charge
• Early repayment fee

How to avoid speculation tax on your property sale

As already mentioned, speculation tax only applies if you sell the property at a profit within ten years of acquisition. Accordingly, no taxation is due after the ten years have expired.

Likewise, you avoid the tax if you have lived in your property at least in the year of the sale and in the two preceding years. Since only the respective calendar years matter, these three years can be reduced to only 14 months in the best case. For example, if you moved into your house in December 2020 and sell it in January 2022, the requirements for tax exemption are already met.

This tax exemption regulation also applies to secondary residences. This means that even if the second home is only occupied for a few weeks a year, but it is also available to the owner as living space during the rest of the year and is not rented out to a third party, the legislator assumes that it is owner-occupied. However, if an owner sells more than three properties, which were only temporarily used for his own purposes before the sale, within five years, the state assumes commercial property trading. Income tax and trade tax are therefore due again.

Conclusion: Selling real estate for speculation tax is a matter of consideration

When selling real estate, as described above, there are specifically two ways to avoid speculation tax altogether. It is not uncommon, however, that you have no other choice but to sell your property immediately due to your circumstances. The decision to do so must be weighed up in the light of all the important factors.

As an experienced real estate agent in the Munich area, we are happy to illuminate all sensible options together with you in order to achieve the best possible profit when selling your property, house or flat. We are at your disposal for professional advice and valuable tips. Call us, send us an email or book an appointment for a free consultation right here:

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