As of: March 1, 2024, 3:49 p.m
By: Markus Hofstetter
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There are strict limits to the tax-free sale of real estate.
The focus is on the question of private use.
Sellers have to take this into account.
Munich - Selling a property can be very lucrative.
The tax authorities are even left out if there are at least ten years between “purchase and sale”.
This is what it says in Section 23 of the Income Tax Act (EStG).
At the same time, he formulates an exception, namely in the event that the property is used “exclusively for residential purposes”.
If you have lived in it for the last two years and in the year of sale, the ten-year period does not apply and no tax is due.
What sounds simple has a catch: How is “own residential purposes” defined?
The Federal Finance Court (BFH) has already dealt with the interpretation several times and has usually interpreted the term narrowly, as several judgments show.
Selling a property tax-free: What you should consider after a divorce
In November 2023, the BFH decided on tax liability when selling a property after the breakdown of the marriage.
A couple who had been married for many years lived in a property with two children.
After the divorce, the ex-husband moved out and the wife gave him her share of the house.
In return, the woman was allowed to use the house free of charge as long as her younger son lived there.
In addition, the ex-wife was released from all joint debts, including loan obligations, and received a compensation payment.
There are strict limits to the tax-free sale of a property.
© IMAGO/imageBROKER/Unai Huizi
When the ex-husband sold the property four years after the divorce, the tax office demanded his share of the profits.
The seller didn't want to accept this and went to court.
The BFH ultimately agreed with the tax office because the transfer to the child's mother did not constitute use for one's own residential purposes (ref.: IX R 10/22).
The ex-husband would have had to wait another six years to sell the property tax-free.
The situation is different if one or more children live alone in a property (i.e. without the second parent), for whom the owner is entitled to child benefit.
Here the judges considered “use for personal residential purposes” to be given.
This meant that the plaintiffs were allowed to sell the apartment they purchased in 2010 tax-free just six years later.
(Af.: IX R 28/21)
Tax-free sale of a property: (mother-in-law) does not bring any tax advantage
A mother-in-law, on the other hand, is not a reason for a tax-free sale.
In 2009, a couple bought an apartment in which the wife's mother lived free of charge.
After their mother died in 2016, the couple sold the apartment a year later.
The tax office rightly demanded its share of the sales profit, according to the BFH.
“Contrary to the plaintiffs’ opinion, it is not enough that the taxpayer is only registered as a resident at the address of the property, but is only there for visits,” the judgment states.
(Ref.: IX R 13/23).
The plaintiffs would have had to wait another two years until the end of the ten-year period to sell in order not to have to pay taxes.
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Proportionate sale of land: land cannot be used for residential purposes
The same applies to the proportional sale of a property.
A couple bought a large property with a house in 2014.
In 2019 they sold part of the property.
As the BFH confirmed, this process is also taxable.
The residential building and the associated land are different assets for income tax purposes.
Conceptually, only the residential building can be used for your own residential purposes.
(Af.: IX R 14/22)
In summary, you can sell a property tax-free before ten years if you live in it yourself for at least two years or have descendants entitled to child benefit move in.
Here you can find out how you can pass on real estate in a tax-efficient manner.