An inherited property is a valuable asset, but selling it can quickly become a tax trap. With the right knowledge of deadlines and allowances, it's often possible to save five-figure sums. Find out here how to legally and effectively reduce your tax burden when selling an inherited property.
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The topic briefly and concisely
The 10-year speculation period begins on the purchase date of the decedent, not with the inheritance event.
Owner-occupancy in the year of sale and the two preceding years (or by the testator) eliminates the speculation tax.
An accurate market value appraisal can reduce inheritance and speculation tax liabilities, as tax office estimates are often too high.
Are you facing the decision to sell an inherited property? This situation involves not only emotional, but also significant financial implications, as the tax office taxes the process twice: with inheritance tax and speculative tax. Many heirs end up paying thousands of Euros too much because they do not know the decisive regulations. This article guides you through the 3 most important levers – speculative period, personal use, and deductible costs – and shows you how to maximize the sale proceeds with precise planning and accurate valuation, rather than unnecessarily sharing them with the tax office.
The speculation period: The first lever for tax avoidance
The most important factor in 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 it. The key point for heirs is: The period does not begin with the inheritance but with the original purchase date by the deceased. So if the deceased acquired the property in 2010, you could sell it tax-free from 2020 onwards. A correct date check is the first step to saving up to 42% of the profit. Find out more about the speculation period in inheritance to avoid costly mistakes. This regulation forms the basis for all further tax considerations.
Personal use as an exception: Achieving tax exemption in under 3 years
Even if the ten-year period has not yet expired, you can avoid the speculative 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 sale and in the two preceding years. A short period can suffice here: Moving in December 2022 and selling in January 2024 covers the calendar years 2022, 2023, and 2024. Continuous self-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.
Inheritance tax and allowances: Understanding the second financial hurdle
< p>Regardless of the capital gains tax, inheritance tax is payable on every inheritance if the value of the property exceeds your personal allowances. For direct children, this allowance is €400,000, and for spouses, it is even €500,000. 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%. A precise determination of the market value is therefore crucial. Use an inheritance tax calculator for an initial assessment. The exact evaluation is also relevant to avoid accidentally falling into the trap of commercial land trading.
The Three-Object Limit: When Selling Becomes a Business Activity
Care is required 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 additionally business tax. Inherited properties do not generally count towards this limit, unless you continue a pre-existing commercial trade of the deceased or undertake extensive modernisations. The following objects are typically counted:
Unbuilt plots of land
Condominiums and single-family houses
Multi-family houses
Garages and parking spaces, if sold separately
Shares in real estate funds under certain conditions
This regulation protects private sales but requires a clear distinction. Another option for tax reduction lies in deducting relevant costs.
Deductible Costs: Actively reduce taxable income
Falls speculation tax is applicable, you can reduce the taxable profit by deducting various costs. Any expense directly related to the sale reduces your tax burden. Therefore, keep all receipts carefully. The most important deductible items include:
Costs for sales ads and listings.
Agent commissions that you, as the seller, bear.
Notary fees for certifying the sales contract.
Costs for removing the land charge from the register.
Expenses for producing a necessary energy certificate.
Travel costs for viewings.
Costs for a market value appraisal to determine the price.
A detailed checklist for the sale helps to ensure no deductible item is overlooked. The most important cost item is often the foundation for everything else: the market value.
The correct market value: Basis for all tax calculations
For both inheritance tax and capital gains tax, an accurate market value of the property is crucial. The tax office often uses standardised procedures that can miss the real value by up to 20%, as individual characteristics like a backlog of renovations are not considered. A value set too high 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 assists you immediately and free of charge. A realistic value is the key to a fair tax assessment.
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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 primary residence exemption, and claim all deductible costs. A professional property valuation protects you from excessive demands from the tax office and ensures you achieve the maximum proceeds. An informed sale is the most straightforward way to secure your inheritance, rather than share it with the tax authorities.
Additional useful links
Wikipedia provides a comprehensive overview of inheritance tax in Germany.
The Federal Ministry of Finance offers information on its official site about inheritance and gift tax.
Another page from the Federal Ministry of Finance explains the application of regulations for the valuation of real estate in the context of inheritance and gift tax.
The Federal Statistical Office (Destatis) publishes press releases which may also be relevant for real estate market developments.
On gesetze-im-internet.de you can find the full legal text of § 23 of the Income Tax Act (EStG), which regulates the speculation period.
The Federal Chamber of Notaries provides comprehensive information on the legal aspects of inheritance and gifting.
The Deutsche Bundesbank offers its indicator system for the residential property market, providing important data on market developments.
A detailed article on the development of residential property prices and rents can also be found at the Deutsche Bundesbank.
The complete Inheritance and Gift Tax Act (ErbStG) is available on gesetze-im-internet.de.
FAQ
What is the difference between inheritance tax and capital gains tax?
Inheritance tax is levied on the value of the inherited assets and is triggered by the inheritance event. The capital gains tax is an income tax that only applies 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 obliged to send a copy of the purchase contract to the relevant tax office. The tax office then automatically checks if capital gains tax is applicable.
What happens if I set the market value too low?
An underestimated market value can be challenged by the tax office, potentially leading to additional payments and possibly even criminal tax proceedings. A professional appraisal provides legal certainty in this matter.
Can I deduct renovation costs before selling?
Yes, if the renovation costs serve the purpose of making the property easier to sell (e.g., repairs), they can be deducted from the capital gains and thus reduce the speculation tax. However, major modernisations may be assessed differently.
Does the owner-occupation exemption also apply to a second home or holiday apartment?
Yes, the Federal Fiscal Court has ruled that a second or holiday home used for personal purposes can also fall under the self-use exception, provided it was not rented out to third parties during the relevant period.
What happens if a community of heirs sells?
In an heir community, the tax regulations are individually reviewed for each co-heir. The capital gain is divided according to the inheritance quotas, and each heir must tax their share according to their personal circumstances (e.g. personal tax rate).
