Case at issue: Sale of co-ownership share after separation
The now-divorced spouses acquired a single-family home in 2008, each holding a 50% share. They lived in it together with their son until the plaintiff moved out in 2015. In the course of the divorce, the plaintiff sold his co-ownership share to his divorced wife in 2017 and realised a capital gain. Contrary to the plaintiff's view, the competent tax office treated the capital gain as other income under § 22 Nr. 2 S. 1 EStG in conjunction with § 23 EStG in the income tax assessment. The plaintiff, by contrast, argued that he had used the property for his own residential purposes and was therefore exempt from taxation under § 23 Abs. 1 S. 1 Nr. 1 S. 3 EStG.
BFH ruling (judgment of 14 February 2023, IX R 11/21): No owner-occupied property
The BFH confirmed the tax office's view: there was no use of the single-family home for the plaintiff's own residential purposes, and the capital gain is therefore taxable. The BFH further noted that the disposal is in principle taxable under § 23 Abs. 1 S. 1 Nr. 1 EStG, since the period between acquisition (2008) and disposal (2017) of the co-ownership share was less than ten years. The plaintiff's argued use for own residential purposes would allow a tax exemption for capital gains from property sales within the ten-year period if the property was used exclusively for own residential purposes between acquisition/completion and disposal, or was used solely for own residential purposes in the year of disposal and the two preceding calendar years. Since the plaintiff had not lived in the divorced spouse's home since 2015, i.e. two years before the sale of his co-ownership share, use for his own residential purposes is ruled out. A taxpayer may, however, also benefit from the exemption for use for own residential purposes if the property is made available to his child in fulfilment of his maintenance obligation. This relief does not apply in the present case, however, because in addition to the child, the property is also occupied by the divorced spouse (a third party).
Tax considerations: Disposal transactions in the course of divorce
Accordingly, in the course of a divorce, the sale of a property or of a share in a jointly owned property should be carefully planned from a tax perspective. If, as in the present case, the disposal takes place only shortly before the expiry of the ten-year period, postponing the disposal until after the ten-year period to avoid taxation may well be worthwhile. Furthermore, a tax-free disposal within the ten-year period can be achieved if the sale takes place immediately before or at the time of the respective spouse moving out. In that case, the spouse moving out would be using the jointly owned property for own residential purposes up to the date of disposal. If, however, continued cohabitation is no longer possible, a tax-free disposal within the ten-year period can also be achieved by carrying out the sale while the marriage still subsists. In this case, the taxpayer would no longer use the formerly joint home directly for own residential purposes, but by fulfilling the maintenance obligation towards the child, there would be indirect use for own residential purposes, and the tax exemption under § 23 Abs. 1 S. 1 Nr. 1 S. 3 EStG would apply. The spouse would, in this case, not be harmful to the exemption, since a separation has not yet taken place and she would therefore not be regarded as a third party.
Frequently asked questions
Frequently asked questions
Is the sale of a co-ownership share to the ex-partner taxable?
Yes. If less than 10 years lie between acquisition and disposal, the gain is taxable as a private disposal transaction under § 23 Abs. 1 S. 1 Nr. 1 EStG. The BFH confirmed this for a divorce case in its ruling of 14.02.2023 (IX R 11/21). A tax exemption only applies if the requirements for use for own residential purposes are met.
When does a use for own residential purposes within the meaning of § 23 EStG apply?
A qualifying owner-occupied use exists if the property was used exclusively for the owner's own residential purposes between acquisition and sale, or at least in the year of sale and the two preceding calendar years. A sale following a move-out generally does not meet this requirement. As a result, the tax exemption within the 10-year holding period does not apply.
Does letting a property to one's own child qualify as personal use within the meaning of § 23 EStG?
Providing a property rent-free to a dependent child can qualify as indirect use for personal residential purposes and trigger the tax exemption. This requires that the property is used exclusively by the child. If another person, such as a divorced spouse, also lives there, the exemption does not apply, as this person is considered an unrelated third party.
How can taxation on a property sale be avoided in the event of divorce?
From a tax perspective, a sale after expiry of the 10-year speculation period is advantageous. Within this period, a tax-free sale is possible if it takes place immediately before or upon a spouse moving out, or while the marriage is still intact. In the latter case, use by the spouse is not deemed harmful, as the spouse is not yet regarded as an unrelated third party.
Why was the tax exemption denied in the BFH case IX R 11/21?
The plaintiff had moved out of the joint home two years before the sale, so there was no longer any personal residential use. Indirect own use based on the maintenance obligation toward the child failed because the divorced wife also continued to live in the property. As a result, the capital gain within the 10-year holding period was fully taxable.