At what amount are private sales transactions taxable?

If you make a profit from private sales transactions, you only need to pay tax on it if it exceeds 600 Euro, as there is a corresponding allowance up to this amount. Since no tax exemption is granted here, if you make a profit of 600 Euro or more, you must pay tax on the entire amount, not just the portion exceeding the allowance.

The capital gain is included in the taxable income and is then taxed at the personal tax rate. The withholding tax does not apply here.

Losses from sales transactions may only be offset against profits of the same category.

For jointly assessed spouses, each partner is entitled to the allowance. An unused allowance cannot be transferred to the spouse.

(2022): At what amount are private sales transactions taxable?

When is the sale of a property a private disposal transaction?

The sale of a property can be considered a private sale transaction. The key factors are the use of the property and the timing of the sale.

If you sell a property within ten years of purchase, you must pay tax on the profit from the sale at your personal tax rate. However, this does not apply if you have used the property for your own residential purposes. In this case, you can sell the property without the profit being taxed.

Exceptions to the tax liability apply to owner-occupied properties (§ 23 para. 1 sentence 1 no. 1 sentence 3 EStG). There are two cases ("alternatives") to distinguish:

Alternative 1: The property was used continuously for own residential purposes from the time of purchase or completion until the sale.

Alternative 2: The property was used for own residential purposes in the year of sale and the two preceding years. It is not necessary for this period to cover three full calendar years.

The Federal Fiscal Court has ruled that the 2nd alternative - unlike the 1st alternative - does not require exclusive owner-occupation. The duration of owner-occupation in the first and third year is not relevant. Only in the second year must the owner-occupation have been continuous. Therefore, a short period of owner-occupation before the sale of a long-term owner-occupied flat is not detrimental (judgment of 3.9.2019, IX R 10/19).

The case: The claimant purchased a flat in 2006, which he used continuously for his own residential purposes until April 2014 and sold again with a notarised purchase contract dated 17.12.2014. From May 2014 - when he moved out - until the sale in December 2014, the claimant rented the flat to third parties. The tax office calculated a taxable capital gain of 44,338 Euro. The claimant objected to this. In his view, the sale was not taxable because he had used the flat for his own residential purposes in the year of sale and in the two preceding years (2nd alternative). The action against this was successful; the Federal Fiscal Court dismissed the tax office's appeal.

Reasoning: The 2nd alternative requires that the flat is used for own residential purposes in the year of sale and in the two preceding years. The use for own residential purposes in the year of sale and in the second year before the sale does not have to have been for the entire calendar year; rather, a continuous period of use for own residential purposes extending over three calendar years is sufficient, without fully covering them - except for the first year before the sale ("middle calendar year").

This means: A continuous use of one year and two days is sufficient for the application of the exemption provision - whereby the use for own residential purposes must cover the entire middle calendar year, while the own residential use in the second year before the sale and in the year of sale only needs to cover one day each.

Current: The Federal Fiscal Court has ruled in favour of employees and against the tax authorities that the gain attributable to the home office from the sale of the home is not subject to speculative tax if one of the above-mentioned exemption provisions for the home applies. The capital gain is also fully tax-free if expenses for the home office were previously deducted (BFH judgment of 1.3.2021, IX R 27/19).

The sale of a property is taxable as a private sale transaction if the sale takes place within ten years of purchase (§ 23 para. 1 no. 1 EStG). However, the capital gain is tax-free if the property was used continuously for own residential purposes between the time of purchase or completion and the sale, or if the property was used for own residential purposes in the year of sale and the two preceding years.

But what applies if spouses are estranged, one spouse moves out and the home they own is then used - free of charge - by the other (ex-)spouse or a child until the property is sold? Does this still count as "use for own residential purposes" so that the sale of the home within the ten-year period remains tax-free?

The Münster Finance Court has recently ruled that free use by the ex-spouse is not "use for own residential purposes" (FG Münster of 19.5.2022, 8 K 19/20 E).

(2022): When is the sale of a property a private disposal transaction?

How do I calculate the capital gain or loss?

A profit or loss from a sale transaction is, according to Section 23 of the Income Tax Act, the difference between the sale price on the one hand and the acquisition or production costs and advertising costs on the other.

Acquisition costs include the pure purchase price and ancillary acquisition costs. The acquisition or production costs are reduced by depreciation for wear and tear (AfA), increased depreciation and special depreciation, insofar as they have been deducted in the determination of income. Ultimately, the deducted AfA is reversed.

Ancillary costs include, for example, consultancy fees, purchase fees, telephone charges or travel expenses, but they must all have been incurred in connection with the acquisition. Advertising costs must be apportioned if they are also related to other income.

(2022): How do I calculate the capital gain or loss?

Holiday apartment: Is the sale taxable even if used privately?

If you sell your holiday home or apartment, you may have to pay tax on the profit in certain cases. As a rule, the sale of a property is tax-free after 10 years. However, if the period between purchase and sale is not more than 10 years, it is considered a private sale transaction. An exception applies if the property was used exclusively for your own residential purposes between the time of purchase or completion and the sale, or in the year of sale and the two preceding years (§ 23 para. 1 no. 1 sentence 3 EStG).

According to the tax authorities, the profit from the sale of a holiday apartment or weekend house within the 10-year speculation period is tax-free if you used the property exclusively for your own residential purposes from the time of purchase or completion until the time of sale, or in the year of sale and the two previous years.

It is even harmless if the property is unoccupied outside of your own use. It is considered "for own residential purposes" even if it is only occupied occasionally, as long as it is available to you as a residence during the rest of the time (BMF letter dated 5.10.2000, BStBl. 2000 I p. 1383, para. 22).

The Cologne Finance Court ruled against the tax authorities, stating that "own use" of a holiday apartment is not applicable if it is mainly used for holiday stays. If such a holiday apartment is sold before 10 years have passed, it is considered a private sale transaction, and the profit is taxable as "other income" under § 22 no. 2 EStG (FG Cologne dated 18.10.2016, 8 K 3825/11, appeal IX R 37/16).

Fortunately, the Federal Fiscal Court overturned this decision and ruled as follows: A building is also used for own residential purposes if the taxpayer only occupies it temporarily, provided it is available to them as a residence during the rest of the time. Therefore, second homes, holiday homes not intended for rental, and homes used as part of a second household can fall under § 23 para. 1 sentence 1 no. 1 sentence 3 EStG (BFH v. 27.06.2017, IX R 37/16 BStBl 2017 II p. 1192).

The Münster Finance Court recently ruled that even if the profit from the sale of a holiday apartment is taxable, the inventory sold with it is not included. This means it is not part of the speculative profit (judgment dated 3.8.2020, 5 K 2493/18 E).

(2022): Holiday apartment: Is the sale taxable even if used privately?