Inherited a property? Congratulations, but be cautious: without the right knowledge, 30% of the profit can quickly go to the tax office. This guide shows you how to avoid the most common tax traps when selling inherited properties and secure your inheritance.
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The topic briefly and concisely
The 10-year speculation period begins on the date of purchase by the decedent, not with the inheritance event.
Personal allowances (e.g., €500,000 for spouses, €400,000 for children) can significantly reduce or completely avoid inheritance tax.
An independent market value appraisal can correct the often overestimated valuation of the tax office and thus reduce the tax burden.
Inheriting a property presents many with a significant challenge. Often, selling is the most sensible solution, but German tax law contains costly pitfalls. Between inheritance tax, speculation period, and accurate property valuation, there are financial risks that can greatly reduce the profit. Incorrect assumptions, such as when the speculation period begins, can lead to additional payments of over 40%. This article offers you a clear guide to overcoming these hurdles. Learn how to minimise your tax burden and make the sales process legally secure and profitable.
Step 1: Reduce inheritance tax with correct allowances
The first tax hurdle after an inheritance is the inheritance tax. The amount depends on the market value of the property and your degree of kinship to the deceased. Fortunately, the law provides personal allowances, which can be used again every 10 years. For spouses and registered partners, this allowance is 500,000 Euro, for children it is 400,000 Euro.
Only the amount that exceeds this allowance is actually taxed. An example: A child inherits a house valued at 450,000 Euro. Only 50,000 Euro is subject to inheritance tax. Siblings, nieces or nephews, on the other hand, only have an allowance of 20,000 Euro. An accurate determination of the market value is therefore crucial in order to correctly establish the assessment basis. Overview of allowances:
500,000 € for spouses and registered partners
400,000 € for children and stepchildren
200,000 € for grandchildren
100,000 € for parents and grandparents (in the event of inheritance)
20,000 € for all other heirs (e.g. siblings, friends)
An overvaluation by the tax office can unnecessarily increase the tax burden and reduce your financial leeway by up to 15%. This underscores the need to closely examine the next major tax factor: the speculation tax.
Step 2: Bypass capital gains tax with the 10-year rule
The biggest and often unexpected financial pitfall is capital gains tax. It becomes due if less than 10 years have passed between the purchase and sale of a property. The critical point for heirs is: the period does not begin with the inheritance, but with the date on which the deceased originally acquired the property. So, if the deceased bought the house 11 years ago, you can sell it immediately tax-free.
An important exception to the 10-year rule is owner occupancy. If you have occupied the property in the year of sale and the two preceding calendar years, the capital gains tax is also waived. Moving in December 2023 and selling in January 2025 is sufficient to meet this condition for three calendar years. If the sale profit is below the tax-free allowance of 600 euros per person, it is also tax-free. More information on the speculation period for inherited houses can be found in our detailed article. Understanding these time limits is fundamental, but the correct valuation determines the actual tax amount.
Step 3: Use the market value as leverage against the tax office
The tax office often determines the value of your inherited property using standardized procedures without an on-site visit. These standard valuations can exceed the actual market value by 15-20% as individual features like renovation needs or a poor micro-location are not considered. The result is a potentially inflated assessment basis for inheritance and speculation taxes. However, you have the right to prove a lower market value.
This is where an independent market value appraisal comes into play. An appraisal prepared by a certified expert is recognized by the tax office and can significantly reduce your tax burden. The costs for such an appraisal, which range from about 0.5% to 1.5% of the property value, are often a worthwhile investment. A value €50,000 lower can reduce your tax burden by over €20,000. Unsure if an appraisal is worthwhile for you? Start a free analysis with our ImmoGPT chat to get an initial data-driven assessment. With a valid value in hand, you are also prepared for the next potential pitfall.
Step 4: Know the Three-Object Limit and Avoid Commercial Activity
An often overlooked risk is the so-called three-object limit. If, as a private individual, you sell more than three properties within five years, the tax office classifies you as a commercial real estate dealer. The consequence: Not only is your personal income tax rate applied to the profit, but also trade tax, which can quickly increase the tax burden by 15%.
However, there is important reassurance for heirs: A property acquired through inheritance is generally not considered an object for the purposes of this rule. Caution is advised, though, if you carry out extensive modernisation or construction work before the sale. If new economic assets are created as a result (e.g., through the subdivision of a property), the tax office may view this as a commercial activity. The regulations regarding this are complex and highlight the importance of a clear separation between private asset management and potentially commercial activity, especially in communities of heirs.
Step 5: Resolving conflicts in communities of heirs through transparency
If the community of heirs consists of several people, all decisions must be made unanimously. This often leads to conflicts, as the financial goals and emotional ties of the co-heirs often vary widely. A sale is usually the only solution that enables a fair and clean distribution of assets. The basis for this is a neutral and comprehensible sale price for all. An objective appraisal is not a cost factor here, but a tool to prevent conflicts, costing less than 1% of the potential dispute value.
A particular tax trap arises when one heir takes over the share of another. This process is considered a purchase transaction. For the acquired portion, a new, 10-year speculation period begins. In order to avoid such pitfalls and find a common ground, neutral evaluation is essential. A data-driven analysis from Auctoa provides an objective basis, accepted by all parties, paving the way for a smooth sale. A detailed checklist for the sale helps to structure the process.
Conclusion: Strategy beats tax burden
To avoid tax traps when selling inherited property, proactive action is crucial. Check the 10-year period inherited from the deceased, use your personal inheritance tax allowances, and question the blanket valuation by the tax office. An independent market value appraisal is your strongest tool to ensure fair taxation and achieve the maximum proceeds. With a clear strategy, you turn a potentially complex inheritance into a financial success.
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Additional useful links
Gesetze im Internet provides the full text of the Inheritance and Gift Tax Act (ErbStG).
FAQ
Do I have to sell an inherited house immediately?
No, there is no obligation to sell immediately. However, you must inform the tax office within three months of becoming aware of the inheritance. A careful review of tax deadlines is advisable to avoid unnecessary costs.
What happens if I don't want to sell as part of a community of heirs?
In an inheritance community, all co-heirs must agree to the sale. If no agreement is reached, any co-heir can request a partition auction, which often results in financial losses for all parties involved.
What costs arise alongside taxes during the sale?
In addition to taxes, there are costs for land registry correction, the creation of an energy performance certificate, potential estate agent commissions (approximately 3-7% of the purchase price), and notary fees (around 1.5-2% of the purchase price). The costs for a valuation report should also be considered.
Can I deduct the debts of the deceased from taxes?
Yes, liabilities on the estate such as existing mortgages on the property, funeral costs, or costs for the certificate of inheritance can be deducted from the value of the inheritance. This reduces the tax base for inheritance tax.
What is the difference between inheritance tax and capital gains tax?
Inheritance tax is levied on the value of inherited assets that exceed your allowances. Capital gains tax is applied to the profit you make on a sale within the 10-year period. These are two independent types of taxes, both of which may apply.
How do I prove personal use to the tax office?
Proof of personal use can be provided by the registration certificate from the local registration office. Utility bills or phone bills addressed to your name and the corresponding address can also serve as evidence.
