Everything you need to know about speculation tax on real estate in Germany
So, you want to sell your property, but you aren’t sure what taxes you’ll have to pay? Our guide will help you understand whether you need to pay speculation tax, and if so, how you can reduce it.
5 min read
Owning a property is one thing—but what happens when you want to sell it? Whether it’s an apartment you inherited or a home you bought yourself, selling your property usually means that you have to pay speculation tax (also called real estate tax). However, there are several exceptions that can reduce the amount of tax you have to pay when selling your property. If all these terms have your head spinning, fear not—our guide to speculation tax and real estate has the need-to-know information that will help you make sense of it all. Let’s dive in!
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Real estate tax in Germany
When you sell an apartment or house, you’ll have certain costs that you need to cover. These include the estate agent and notary fees and the costs of getting the energy performance certificate and the valuation report. But “real estate tax” is another important cost that you’ll want to prepare for. Selling your private property will (ideally) generate a profit for you, and the government may tax that profit. Whether or not you have to pay taxes when selling your house or apartment depends on several factors. Let’s take a look.
Real estate tax versus speculation tax
Real estate tax is also called speculation tax. However, neither term is strictly correct—unlike other types of tax, real estate/speculation tax isn’t a standalone tax. Rather, it’s a sub-type of income tax that falls under the German Income Tax Act and depends on the seller’s income tax rate.
Unique to “speculation tax” is the 10-year “speculative period.” Here’s how it works: Imagine you bought an apartment in 2015 and began renting it out. You’ve watched real estate prices explode since then, and now you want to sell the apartment for a profit.
But there’s a problem—the speculative period for your property doesn’t run out until 2025. This means you’ll have to pay taxes on your profit if you want to sell the property before then. If you sell during the speculative period, the income you make from the private sale is taxable, according to Sections 22 and 23 of the German Income Tax Act. However, if you wait until the speculative period ends, you won’t have to pay speculation tax.
The speculative period starts on the date listed on the notarized purchase agreement. For example, if you bought an apartment on June 1, 2015, you can sell it tax-free after June 2, 2025.
Tax on property sales: when do I need to pay?
You have to pay speculation tax on property if:
- You sell a rented property within the speculative period
- You sell an undeveloped plot within the speculative period
- A property from your spouse is transferred to you as part of a divorce or separation of property
- You personally finance a property using business assets
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How high is speculation tax on property?
As we mentioned, speculation tax is part of the German Income Tax Act. Therefore, how much speculation tax you’ll have to pay is based not only on the price of the sale, but also on your tax bracket and other income. The rate ranges from 14% up to a maximum of 45%, depending on your tax bracket and annual salary.
This also means that the costs you might incur while selling your property—like the fees and report costs—may be deductible on your tax return. It’s just like the other professional and special expenses that you might offset to reduce your tax burden. Find out what you can deduct from your income tax and what deadlines apply.
How can I reduce taxes when I sell real estate?
There are a few ways you can reduce the tax you have to pay when selling your property. For example:
- Live in the home yourself in the year of the sale and two years prior, at minimum. This means if you move into a house or apartment today, you could resell it tax-free in three years. Just be aware that having the right of residence alone is not enough—you actually have to use the residence yourself.
- You can sign a pre-contract with interested buyers or let them rent the property. This allows you to push back the purchase agreement date so that you don’t sell during the speculative period.
- Your child lives in the home and receives child benefit payments—in the year of the sale and two years prior, at minimum. Even if you don’t live in the home yourself, as long as your child has lived there for at least three years, you can save on tax when you sell the property.
- You make less than €599 from the sale of your property. This is the maximum tax-free amount.
- You give the property to someone else, free of charge. However, the person receiving the property may have to pay “gift tax.” Depending on the tax-exempt amount and your relationship to the person, it could turn out to be an expensive gift.
If none of this applies to you, you will probably have to pay speculation tax when selling your property.
Selling inherited real estate: do I need to pay taxes?
If you’ve inherited property and want to sell it, you should look at when the deceased person purchased the property. You likely won’t have to pay any real estate taxes if the speculative period has already ended. The reductions above also apply if the deceased person lived in the home for three years prior, even if the speculative period hasn’t finished. Still, you may have to pay inheritance tax on property, depending on the tax-free amount. You can find out more in our guide to inheritance tax.
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