(2022)
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).
