When selling a condominium, the tax office may demand speculation tax. This is a tax that results from the profit you make on the sale. The speculation tax does not apply automatically. For example, if the condominium has been owned by you or your family for more than ten years, you do not have to pay speculation tax. There are other legal ways to avoid speculation tax. For example, it may be enough to choose the right time to sell in order to save tax. Find out how it is possible to sell without incurring speculation tax.
Attention: Please note that all information is provided without guarantee and that this article does not constitute tax advice. For detailed information on your individual circumstances, please consult your tax advisor.
No speculation tax on the sale of a condominium: Legal tricks to avoid speculation tax
Speculation tax is not generally payable when you sell your home. Rather, it is an individual amount that depends on various factors. The speculation tax is levied by the tax office for the sale of a valuable property. This includes real estate because it fetches high prices in most regions of Germany. You can avoid paying speculation tax with a few tricks. These tricks are legal. You are in no way breaking the law if you do not want to pay the speculation tax on the sale of a property and resort to one of these tricks.
Speculation with real estate is to be prevented
There is a logical reason for levying speculation tax: the state wants to prevent excessive speculation in real estate. The tax office therefore levies speculation tax if less than ten years have passed since the property last changed hands. However, there are exceptions to this rule, which we explain below. If you are well informed, you can avoid paying the tax, which in many cases amounts to a five-figure sum. You can find out more about the taxation of condominiums on sale in this article:“How are condominiums taxed on sale?”
Selling a condominium without speculation tax: wait for a ten-year period
There is a very simple and above all obvious method of avoiding speculation tax: You wait at least ten years until you resell your condominium. After this period, the tax office may no longer levy speculation tax. It does not matter whether the sold condominium is empty, whether it is rented out or whether you live in the apartment yourself.
Time is the most important factor for avoiding speculation tax
The time factor is one of the most important factors if you want to avoid speculation tax. It is also simple: if possible, wait ten years and speculation tax will no longer be an issue for you, even with very expensive properties.
Avoiding speculation tax when selling an apartment with proof of owner occupation
There is a special situation regarding the due date for speculation tax if you or family members live in the apartment yourself. In this case, the property is owner-occupied. In the legal text for the levying of speculation tax, there is a special feature for owner-occupied condominiums: if you have lived in the property yourself for at least two years after purchasing it, you can legally avoid speculation tax. The two-year period also applies if close family members live in the apartment. It is important for you to know that in order to avoid speculation tax, you must provide proof of owner occupation and the year of sale.
Other special features in connection with own use
Close family members also include children for whom you receive child benefit. This use is recognized by the tax office as personal use.
If you want to sell a vacation home, you should note that you are not allowed to rent it out. In this case, it would not be considered owner-occupation even if you only rent it out temporarily and only live in it occasionally. You must use the vacation home exclusively for yourself within these two years if you want to avoid speculation tax.
If you would like to sell a condominium that you have previously used as a second home, there is no speculation tax if you have owned the property for at least two years. It does not matter how long you have lived in your second home. There is no speculation tax even if you have only used the second home very little or not at all. As with a vacation home or vacation home, it is essential that you have not rented out the home. According to the law, letting excludes owner-occupation. This also applies if you only rent it out temporarily. To avoid speculation tax, you must therefore ensure that you have lived in the apartment yourself for at least two years, at least on paper. In this context, it is important to know that owner-occupied apartments that were temporarily lived in as part of dual household management also lead to the elimination of speculation tax in the two-year period mentioned.
What you need to know about the "marginal years"
The term “marginal years” refers to the fact that the two-year period does not necessarily have to be a full calendar year. The relevant date is the date of purchase of the condominium.
One example:
The condominium became your property on February 15, 2020. This means that you must keep the apartment in your possession and live in it yourself until at least February 14, 2022. A sale is possible from February 15, 2022. In this example, the years 2020 and 2022 are considered marginal years, 2021 is fully filled. This is also prescribed for the so-called middle year.
You can apply this sample calculation to all other days of the year and thus determine when a speculation-free sale is possible, depending on when you purchased your owner-occupied condominium.
Termination of the tenant due to personal use
You have the right to terminate a tenant’s tenancy for personal use. However, the legal regulations here are very strict. You must really want to use the condominium yourself and prove this accordingly. In addition, a termination for personal use can take a long time, often more than a year. This is therefore an option if the ten-year period is still a long way off. Also bear in mind that you must actually live in the apartment yourself for a period of at least two years. This option is therefore more likely to be considered in exceptional cases.
Avoiding speculation tax on the sale of condominiums through installment plan
As an alternative to owner-occupation, you can avoid speculation tax by renting a condominium. But how does this work?
If you have owned the condominium for less than ten years, if it was purchased and not inherited and if you have not lived in it yourself in the last two years, you still have the option of renting it. In this case, however, you will need to find a tenant who is interested in this form of property purchase. This is somewhat easier in the attractive locations of larger cities and in structurally strong regions than in the countryside. Larger apartments for which longer-term life planning is possible are also more likely to be suitable.
Find a tenant
Let the apartment specifically to a person who intends to sell at a later date. A long-term interest in the apartment is also mandatory. An installment plan is notarized. Be sure to observe the ten-year period.
Pay the purchase price as rent
The tenant pays you rent for the period up to the end of the ten-year period. You offset all or part of this rent against the purchase price. Once you have owned the apartment for ten years, you hand it over to the tenant. A final payment may be due. In this case, you would not be subject to speculation tax. It is important for you that the ten-year period is actually exceeded when you sell the property to the tenant. Otherwise you would have to pay the tax.
Speculation tax does not apply in inheritance and gift cases
If you have taken possession of the property through an inheritance, there is a special situation with regard to speculation tax: you may pay inheritance tax on the inheritance itself, but no speculation tax. It is often necessary to sell the home, for example if there are several heirs who wish to divide the proceeds among themselves. In this case, the time that the deceased owned the apartment counts towards the ten-year period.
Two examples:
You inherit a property that a family member has owned for 30 years. You can sell the property immediately without having to pay speculation tax.
You inherit a property that was previously owned by your family for a period of eight years. In this case, you pay speculation tax if you sell the property immediately. After two years, the speculation tax would no longer apply, as the property would then have been owned by your family for the required period of ten years.
The same applies in the case of a gift: if you have become the owner of the property in this way, gift tax may be due. You must pay this. The period during which the property was owned by the previous owner counts towards this, just as it does in the case of inheritance. You can therefore add this time to your own ten-year period. In the case of a gift, it is important to know that it does not necessarily have to be a family member who gives you the property. The rules also apply to gifts from people to whom you are not related.
How can speculation tax be avoided for commercial real estate?
If you want to sell a commercially used property, the same rules initially apply as for privately used properties: If you have owned the property for more than ten years, you can avoid speculation tax.
Please note this exception:
You pay speculation tax if you sell more than three properties in a five-year period. In this case, the tax office classifies you as a commercial trader. You not only pay speculation tax, but also income tax and trade tax.
