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Saving taxes when selling an inherited property
An inherited property is a valuable asset, but selling it can quickly become a tax trap. With the right knowledge of deadlines and allowances, you can often save amounts in the five figures. Find out here how to legally and effectively reduce your tax burden when selling an inherited property.
With access to Google, BORIS, and Deep Research.
The 10-year speculation period begins with the decedent's purchase date, not with the date of inheritance.
Private use in the year of sale and the two preceding years (or by the testator) eliminates the capital gains tax.
An accurate market value appraisal can reduce inheritance and speculation tax burdens, as tax office estimates are often too high.
Are you faced with the decision to sell an inherited property? This situation involves not only emotional challenges but also significant financial burdens, as the tax office imposes two taxes: inheritance tax and capital gains tax. Many heirs end up paying thousands of euros more than necessary because they are unaware of key regulations. This article guides you through the 3 most important factors – speculation period, personal use, and deductible costs – and shows how you can maximize sales proceeds with precise planning and accurate valuation, instead of unnecessarily sharing them with the tax authorities.
The most important factor for saving taxes when selling an inherited property is the so-called speculation period. If you sell a property for a profit within ten years of purchase, speculation tax is due on this profit. The crucial point for heirs is: The period does not begin with the inheritance event, but with the original purchase date by the decedent. So if the deceased purchased the property in 2010, you could already sell it tax-free from 2020 onwards. A correct date check is the first step to saving up to 42% of the profit. Get detailed information about the speculation period in inheritance to avoid costly mistakes. This regulation forms the basis for all further tax considerations.
Even if the ten-year period has not yet expired, you can avoid the speculation tax. The law provides an exception for personal use. The sale remains tax-free if the property was occupied by you in the year of the sale and the two preceding years. A short period may suffice here: Moving in December 2022 and selling in January 2024 covers the calendar years 2022, 2023, and 2024. Continuous personal use by the deceased between purchase and inheritance also exempts the subsequent sale from tax. This regulation is a powerful tool for selling a property tax-free even in the short term. Next, we will clarify how inheritance tax applies independently of this period.
Regardless of the speculation tax, inheritance tax applies to every inheritance if the property's value exceeds your personal allowances. For direct children, this allowance is €400,000, and even €500,000 for spouses. If the market value determined by the tax office is below this, you pay zero euros in inheritance tax. Only the amount exceeding the allowance is taxed at a rate between 7% and 30%. Accurately determining the market value is therefore crucial. Use an inheritance tax calculator for an initial assessment. The precise valuation is also important to avoid inadvertently falling into the trap of commercial property trading.
Caution is advised when inheriting or owning multiple properties. If you sell more than three properties as a private individual within five years, the tax office classifies you as a commercial property trader. The consequence: you not only pay income tax on the profit but also trade tax. Inherited properties are generally not included in this limit, unless you continue an existing commercial trade of the deceased or undertake extensive modernisations. The following types of properties are typically counted:
Unbuilt plots
Condominiums and single-family homes
Multi-family houses
Garages and parking spaces if sold separately
Shares in property funds under certain conditions
This regulation protects private sales but requires a clear distinction. Another way to reduce taxes is by deducting relevant costs.
If speculative tax applies, you can reduce the taxable profit by deducting various costs. Every expense directly related to the sale reduces your tax burden. Therefore, keep all receipts carefully. The most important deductible items include:
Costs for sales advertisements and listings.
Brokerage fees borne by you as the seller.
Notary fees for the certification of the purchase contract.
Costs for the cancellation of the mortgage in the land register.
Expenses for creating a necessary energy performance certificate.
Travel costs for viewing appointments.
Costs for a valuation report to determine the price.
A detailed checklist for the sale helps ensure no deductible item is overlooked. The most important cost point is often the foundation for everything else: the market value.
Both for inheritance tax and capital gains tax, an accurate market value of the property is crucial. The tax office often uses standardised methods, which can miss the real value by up to 20%, as they don't take individual features, like a backlog of renovations, into account. An overestimated value directly leads to a higher tax burden. With an independent, data-driven appraisal, you can demonstrate a lower value and reduce your tax burden. An Auctoa evaluation provides you with a reliable basis for your negotiations with the tax office in less than 5 minutes. For complex questions, our ImmoGPT chat offers immediate and free assistance. A realistic value is the key to a fair tax assessment.
Selling an inherited property doesn't have to be a tax trap. With the right strategy, you can significantly reduce your tax burden. Check the ten-year rule, take advantage of the principal residence exemption, and claim all deductible expenses. A professional property valuation protects you from excessive demands by the tax office and ensures you receive the maximum proceeds. An informed sale is the most straightforward way to secure your inheritance, rather than sharing it with the tax authorities.
Wikipedia offers a comprehensive overview of inheritance tax in Germany.
The Federal Ministry of Finance provides information on its official site about inheritance and gift tax.
Another page of the Federal Ministry of Finance explains the application of regulations for the valuation of real estate within the framework of inheritance and gift tax.
The Federal Statistical Office (Destatis) publishes press releases that may also be relevant to property market developments.
On gesetze-im-internet.de you can find the complete legal text of § 23 of the Income Tax Act (EStG), which governs the speculation period.
The Federal Chamber of Notaries provides comprehensive information on the legal aspects of inheritance and gifting.
The German Central Bank offers its indicator system for the housing market, which provides crucial data on market trends.
A detailed article on the development of residential property prices and rents can also be found at the German Central Bank.
The complete Inheritance Tax and Gift Tax Act (ErbStG) is available on gesetze-im-internet.de.
What is the difference between inheritance tax and speculation tax?
Inheritance tax is levied on the value of the inherited estate and is triggered by the event of inheritance. The speculation tax is an income tax that only arises if you sell the inherited property at a profit within the statutory periods (e.g. 10 years).
Do I always have to report the sale of an inherited property to the tax office?
Yes, the notary who certifies the sale is legally obligated to send a copy of the purchase agreement to the relevant tax office. The tax office then automatically checks whether speculation tax applies.
What happens if I set the market value too low?
A market value that is set too low can be contested by the tax office, which could result in additional payments and potentially even a tax audit. A professional appraisal provides legal certainty in this case.
Can I deduct renovation costs before the sale?
Yes, if the renovation costs serve the purpose of facilitating a better sale of the property (e.g. repairs), they can be deducted from the capital gain, thus reducing the speculation tax. However, larger modernisations may be evaluated differently.
Does the personal use exemption also apply to a second home or holiday home?
Yes, the Federal Fiscal Court has ruled that a second or holiday home used for personal purposes can also fall under the personal use exemption, provided it was not rented out to third parties during the relevant period.
What if a community of heirs sells?
In a community of heirs, the tax regulations are reviewed for each co-heir individually. The capital gain is divided according to the inheritance shares, and each heir must declare their share in accordance with their personal circumstances (e.g. personal tax rate).
