What is the sale of real estate investment

Speculative Tax: Everything about the speculation period when selling real estate

What should be considered with the speculation tax?

As indicated above, the speculative tax is not a separate tax, but a slang term for income tax for private sales transactions.

In the case of a property sale, the tax authorities require the seller to add the positive difference between acquisition costs and sales price to the taxable income in the income tax assessment. This means that, on the one hand, the profit from the sale is taxed. On the other hand, there is higher income in the income tax assessment and, as a result, a higher percentage on all other income.

The speculation tax can be avoided - speculation period and personal use

Anyone planning to evade this tax should take it into account Speculation period of ten years. This was set up by the legislature to relieve private individuals when selling real estate.

This means that the owner of a property ideally waits the ten-year speculation period before selling, as the legislature says: If a private person sells a property that has been in their possession for ten years or more, no tax is incurred the capital gain (speculation tax). The date on which the two purchase contracts were notarized is used to calculate the speculation period.

In general, a property remains tax-free if the owner uses it himself.

If there are reasons for the early sale of a rented property before the speculation period has expired, taxation of the capital gain can be avoided through previous owner-occupation. Prerequisite is personal use in the year of sale and in the two previous years.

Can speculation tax be saved?

Selling a property during the speculation period often means terminating the financing of the property. The result is that banks feel compelled to demand a prepayment penalty. This can be applied when calculating the profit, so that it is reduced and, as a result, the speculation tax is lower. In practice, such cases arise after divorce or a change of residence.

Furthermore, the effort for repair and modernization work can be applied in many cases. This applies if these have occurred in the last three years and for this reason can be added to the purchase price. Cosmetic repairs are excluded.

Anyone who owns a rented property is able to deduct the property from tax every year. When selling within the speculation period, the depreciation can be added to the capital gain. The Income Tax Act defines which amounts can be added to or deducted from profit in individual cases (Section 23 (3)).

Calculate speculative tax

Anyone who intends to make an initial calculation of the amount of the speculation tax compares the acquisition costs with the sales price. The profit resulting from this calculation increases the depreciation during the holding period. The reason is that the following comparison is made for the calculation of the tax: acquisition costs minus depreciation are compared with the sales price.

Renovation and notary fees, brokerage fees and other costs related to the sale can be deducted from the result of the above invoice. They reduce the taxable profit.

The profit can be found in the income tax return as additional income. The latter leads to a higher taxable total income. This means that the actual tax burden depends on the personal tax rate of the property seller. It is important that a gain in value can be offset against any losses, a loss in value not with positive income.

Speculation tax - sample calculation for a property sale

Someone is re-selling a property six years and fulfills all other requirements for the state to assess it for speculation tax. The following also applies:

Purchase priceSelling priceTaxable difference
250.000 €300.000 €50.000 €

In the case of commercial real estate, two percent of the purchase price can be written off every year. In our example this means: 5,000 euros multiplied by six results in 30,000 euros. These costs reduce the purchase price so that the taxable difference is 300,000 euros - (250,000 euros minus 30,000 euros). The result: 80,000 euros. The cost of renovations and brokerage fees can be deducted from these costs. The tax authorities calculate speculation tax on the rest and apply the personal tax rate of the property seller.

Speculative Tax - What Applies To Commercial Property Sellers?

Anyone who is classified by the tax office as a commercial real estate seller is obliged to pay speculation tax in all cases. The prerequisites for being classified as a commercial seller are: the intention to make a profit, a certain regularity of the sale and the number of properties sold (usually three or more properties per year).

For owners of multi-family houses, the following applies: if you sell three or more apartments within a year, the tax office will levy speculation tax because it classifies you as a commercial seller.

What applies to real estate abroad?

If you are a German who sells a property abroad, the regulations of the respective agreement (double taxation agreement) between Germany and the country in which the property is located apply.

What applies to inherited houses?

In these cases, the speculation period is not calculated from the day of the inheritance, but rather the date on which the testator bought the house. If the date is more than ten years ago, the proceeds from the sale are tax-free regardless of the date of inheritance.