Private Sale Transactions – Taxation in Cases of Short-Term Rental of Rooms

When a property used for own residential purposes is sold, the resulting capital gain is generally exempt from tax. The following section, based on a BFH ruling, explains the various options for tax exemption in the private sale of real estate and how the short-term rental of individual rooms affects this exemption.

Fundamentals: Private Sale Transaction – Tax Exemption for Real Estate

In principle, other income within the meaning of § 22 EStG also includes income from private sale transactions (§ 22 Nr. 2 EStG in conjunction with § 23 EStG). Real estate in particular is likewise classified as income from private sale transactions upon sale if it was held as private assets and the period between acquisition/completion and sale does not exceed ten years (ten-year speculation period pursuant to § 23 Abs. 1 S. 1 Nr. 1 EStG). Exempt from taxation are properties that, during the period between acquisition/completion and sale, were used exclusively for own residential purposes (1st alternative) or were used for own residential purposes in the year of sale and the two preceding years (2nd alternative) (§ 23 Abs. 1 S. 1 Nr. 1 S. 3 EStG). With regard to the use for own residential purposes under the second alternative, the BFH rulings in favour of this tax exemption should be noted. It is sufficient if the property is used continuously for own residential purposes only in the middle calendar year of the three-year period prior to sale. In the other two calendar years, this condition does not need to be met, but overall there must be a continuous period during which the dwelling is used for own residential purposes (BFH ruling of 27 June 2017 – IX R 37/16).

BFH Ruling (BFH ruling of 19 July 2022 – IX R 20/21): Private Sale Transaction – Short-Term Rental of Individual Rooms

The matter in dispute was whether the gain from the sale of a Rhine-side house qualifies as income from private sale transactions to the extent that it is attributable to rooms rented out to third parties on a short-term basis. The rental agreement for the rooms also stipulated that the landlord or owner was not permitted to enter these rooms for the entire rental period.

In its ruling, the BFH first points out that, in case law, the tax exemption based on use for own residential purposes has always been interpreted very broadly and must therefore always be examined on a case-by-case basis. As a basic rule, the taxpayer is regarded as inhabiting the building even if it is used jointly with other family members or even unrelated third parties. However, use for own residential purposes is logically not present where the taxpayer transfers the dwelling to a third party for consideration or free of charge without inhabiting it at the same time. Following this case law, the short-term rental of individual rooms precludes use for own residential purposes, particularly since the landlord or owner was not permitted to enter these rooms during the period of use. There is no statutory threshold, whether in terms of area or time, for the tax-neutral short-term rental of individual living rooms to third parties. Accordingly, the gain from the sale of the Rhine-side house must be apportioned. The basis for the apportionment is the ratio of the living area used continuously for own residential purposes to the living area rented out to third parties on a short-term basis. The portion of the capital gain attributable to the rooms rented out on a short-term basis is therefore taxable and must be attributed to other income (§ 22 Nr. 2 EStG in conjunction with § 23 EStG).