Background:
As a general rule, the following applies to self-used private real estate:
If a rented property is sold, the seller must pay tax on the capital gain, provided that less than ten years lie between the acquisition (purchase) and the sale of the property.
This disposal period generally does not apply to self-used private properties.
To date, the tax authorities have exempted the sale of holiday properties from taxation without requiring a holding period, treating them in the same way as self-used private properties.
Attention, recent ruling:
The Cologne Tax Court has now ruled in its recent decision of 16 October 2016, AZ 8K 3825/11 (appeal proceedings pending before the BFH, AZ IX R 37/16), that the ten-year disposal period also applies to the sale of self-used holiday properties held as private assets. You should therefore consult your Steuerberater (German Certified Tax Advisor) before selling your holiday property in order to avoid any potential taxation of the sale. Taxpayers whose tax office has subjected the sale of a private, self-used holiday property to taxation should file an objection against the tax assessment and refer in their reasoning to the appeal proceedings pending before the BFH (BFH, AZ IX R 37/16).
Frequently asked questions
Frequently asked questions
When is the gain from the sale of a private property subject to tax?
For rented properties held as private assets, the capital gain is taxable if less than ten years lie between acquisition and sale. This so-called ten-year speculation period generally does not apply to owner-occupied private properties, whose sale is usually tax-free.
Does the ten-year speculation period also apply to the sale of owner-occupied holiday properties?
According to a ruling by the Fiscal Court of Cologne dated 16 October 2016 (Az. 8 K 3825/11), the ten-year disposal period also applies to owner-occupied holiday properties held as private assets. The court thus deviates from the previous practice of the tax authorities, which had treated such sales as tax-free regardless of the holding period, in line with owner-occupied primary residences. An appeal on points of law is currently pending before the BFH (Az. IX R 37/16).
What should owners consider before selling a holiday property?
Before any sale, it is essential to seek tax advice, as disposing of the property within ten years of acquisition may trigger taxation. Reviewing the holding periods and usage history at an early stage helps avoid an unexpected tax burden on the capital gain.
How should those affected respond to a tax assessment regarding the sale of a vacation property?
If the tax office has subjected the sale of a privately used vacation property to taxation, an appeal should be filed against the tax assessment within the statutory appeal period. As justification, reference can be made to the pending appeal proceedings before the BFH under case number IX R 37/16 in order to keep the assessment open.