Have you inherited a property and are wondering what to do next? The decision between selling and renting has significant financial and tax implications. We will show you how to make the right choice for you with a clear, data-driven approach.
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The topic briefly and concisely
The decision between selling and renting an inherited property depends on taxes (inheritance & speculative tax), the property value, the rental yield, and your personal financial strategy.
The 10-year speculation period, which begins on the date of purchase by the testator, is crucial to avoid high tax payments on the profit from the sale.
When renting out, you can claim numerous expenses such as depreciation, interest, and maintenance for tax purposes, which significantly improves the post-tax return.
Inheriting a property is more than just a wealth increase – it's a responsibility that often comes to you during an emotional time. Suddenly, you have to make a strategic decision: sell or rent out? This choice depends not only on the property itself but also on your personal life situation, financial goals, and tax conditions. A quick sale promises liquidity but can lead to a high tax burden. Renting out provides regular income, but also entails administrative effort and costs. This article serves as a practical comparison calculator to objectively weigh the pros and cons of both options and make an informed decision for your future.
Laying the Foundation: What Your Inherited Property Is Really Worth
Before you consider selling or renting, you need a neutral data foundation: the current market value. This value is the basis for all further calculations, from inheritance tax to potential sales proceeds or rental yield. The tax office uses standardised methods for valuation, which do not always accurately reflect the market value. An independent appraisal can reveal discrepancies of up to 20% and potentially reduce your tax burden. The exact market value is your most important tool for strategic planning. An accurate valuation of your inherited property protects you from misjudgements and creates a solid foundation for the next step.
The analysis of the condition is equally crucial. A high need for renovation can decrease the attractiveness for tenants and requires immediate investments often exceeding 20,000 euros. These factors directly influence the decision on whether an immediate sale is the more economically sensible option. With a clear evaluation in hand, you can precisely calculate the tax implications of both scenarios.
Scenario 1: The Sale – Quick Liquidity and Its Tax Hurdles
The sale of an inherited property promises a quick influx of capital, but the tax authorities have clear rules. Two types of tax are relevant here: inheritance tax and speculation tax. Inheritance tax is due on the value of the estate that exceeds your personal allowances. For children, this allowance is 400,000 euros, and for spouses, it is even 500,000 euros. For siblings or non-related heirs, the allowance is only 20,000 euros. A property valued at 450,000 euros would be taxable for a child (50,000 euros to be taxed), but completely tax-free for the spouse.
Speculation tax as a crucial factor
The second hurdle is the speculation tax. It applies if less than ten years have passed between the decedent's purchase of the property and your sale. The profit is then taxed at your personal income tax rate, which can be up to 45%. The period does not start with the inheritance but with the original purchase date. If the deceased purchased the property 11 years ago, the sale is tax-free for you. An important exception applies to personal use: If the property was occupied by you in the year of sale and the two previous years, the tax is waived as well. A detailed checklist for property sales helps to review these deadlines correctly.
Scenario 2: Letting – Long-term Return and Calculable Effort
Renting out inherited property transforms it into a long-term source of income. You must declare the annual rental income on your tax return and pay tax according to your personal tax rate. However, the key advantage lies in the deductible advertising costs, which can significantly reduce your tax burden. These include:
Depreciation (AfA): You can depreciate 2% of the building's value annually over 50 years (for buildings constructed after 1924).
Interest on loans: If you take out a loan for renovations, the interest is fully deductible.
Maintenance costs: All expenses for repairs and maintenance can be claimed.
Management costs: Fees for property management or account management are also deductible.
For rented properties, the tax office only considers 90% of the market value for inheritance tax, which equates to a direct tax advantage of 10%. This can be crucial for properties near the personal allowance threshold. Find out about all tax advantages of renting to fully exploit your potential.
Evaluate returns and costs realistically
An attractive gross rental is only half the story. To determine the net return, you need to deduct non-apportionable costs. This primarily includes the maintenance reserve. As a rule of thumb, you should allocate between 9 and 11.50 euros per square metre annually for properties over 22 years old. For a 100-square-metre apartment, this can quickly exceed 1000 euros per year. These costs are borne solely by you as the owner. The administrative effort should not be underestimated either and can take up several hours of your time each month if you do not hire a management service.
Direct Comparison: When Selling or Renting is Worthwhile for You
Your personal situation is the most important factor in this comparison tool when considering whether to sell or rent following an inheritance. There is no one-size-fits-all answer, but there are clear indicators to guide your decision. The decision becomes easier when you understand your priorities.
The following reasons favour a sale:
High and urgent capital requirement: You need liquidity at short notice, e.g., to pay off co-heirs or clear debts.
Poor condition of the property: The cost of renovations is high, and you wish to avoid the investment often exceeding €30,000.
High tax burden: The value of the property significantly exceeds your inheritance tax allowances, and you cannot cover the tax from other resources. An inheritance tax calculator provides quick clarity here.
No emotional attachment or long distance: You live far away, making management difficult, and have no personal connection to the property.
Unfavourable rental market conditions: The region has high vacancy rates, or the achievable rent is very low in relation to the property's value.
Conversely, these points favour renting:
Long-term wealth building: You wish to create a stable, inflation-proof source of income for your retirement.
Good condition and location: The property is in good condition and located in an area with high rental demand, making a yield of over 4% likely.
Tax advantages: You can claim depreciation and expenses, thereby reducing your personal tax burden.
Expected increase in value: You expect a positive development in the site's value over the next 10 years.
Low management effort: You have the time and expertise to manage the property yourself, or you plan to account for professional management costs from the start.
Special Case of Heirs' Community: When Many Heirs Have to Decide
If an estate consists of multiple heirs, an inheritance community is automatically formed. In this case, you cannot decide alone. Every decision regarding the property – whether to sell, rent, or renovate – requires the consent of all co-heirs. This often leads to conflicts in practice, as the financial goals and personal circumstances of the individual heirs are frequently very different. While one heir may want a quick sale to obtain capital, another might prefer long-term rental. A third may wish to move in themselves but cannot afford to buy out the others. These differing interests often obstruct a swift and sensible solution.
The cleanest solution is often an amicable sale, where the proceeds are divided according to the inheritance shares. This creates clear circumstances and dissolves the community. If an agreement cannot be reached, the only remaining option is often a partition auction, which usually results in a sale price that is 15-20% below market value. Clear communication and a neutral appraisal as a basis for discussion are essential to find the best way to sell a house from an inheritance community.
Conclusion: Your data-driven strategy for inherited property
The decision to sell or rent an inherited property is one of the most important financial decisions you will make as an heir. As the comparison calculator shows, there is no one-size-fits-all solution. Selling offers quick liquidity but entails tax risks. Renting secures long-term income but requires effort and careful cost calculation. Your best decision is based not on a gut feeling but on a solid analysis of numbers, data, and facts.
Consider the market value, the tax burden from inheritance and speculation tax, the potential rental yield, and the condition of the property. Only when you know these four key figures can you make an informed choice. Get support to determine these data objectively. An AI-powered property valuation from Auctoa or a conversation with our ImmoGPT can provide the clarity needed to view the inherited property not as a burden but as an opportunity. Make a decision that fits your life plan.
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Additional useful links
The Federal Ministry of Finance provides comprehensive information on inheritance and gift tax in Germany.
A Wikipedia article offers a detailed overview of inheritance law in Germany.
The German Tenants' Association provides important information about rental law.
FAQ
How does the comparison calculator for selling or renting an inheritance work?
Such a comparison is based on the juxtaposition of key financial metrics. On the sales side, there is the expected net proceeds (after deducting selling costs and taxes). On the rental side, there is the expected annual net return (rental income minus non-allocatable costs, maintenance, and taxes). Your personal situation (capital requirements, time investment) is also a crucial factor.
What role does the speculation period play in my decision?
The speculation period is one of the most important factors. If the 10-year period is still running, a sale can become unattractive due to the high speculation tax on the profit. In this case, it may be more sensible to rent out the property until the period expires and only then sell it tax-free.
What happens if I want to rent out as part of an inheritance community, but the others want to sell?
In an inheritance community, all co-heirs must decide unanimously. If no agreement can be reached, no rental contract can be concluded and no sale can be carried out. In such a case, a solution must be found, for example, by one heir taking over the shares of the others. If this fails, any co-heir can apply for a partition auction, which often results in financial losses for everyone.
Can I reduce inheritance tax through renting?
Yes, indirectly. A rented property is calculated for inheritance tax purposes at only 90% of its market value. This 10% valuation discount can reduce your tax burden, especially if the property's value is close to your personal allowance.
What maintenance costs should I plan for when renting out a property?
Plan for a maintenance reserve, which cannot be passed on to tenants. Experts recommend between 7 and 12 euros per square metre per year, depending on the age of the property. Another rule of thumb is to set aside one euro per square metre per month. This reserve covers repairs to the roof, facade, heating, and other central components.
How does Auctoa help me make a decision?
Auctoa provides you with the data-driven basis for your decision. With our AI-assisted property valuation, you receive an accurate and impartial market value. Additionally, our ImmoGPT can help you address initial questions on tax aspects and yield calculation. This ensures you make your choice based not on intuition, but on solid facts.
