Strict limits apply: profit from the sale of the apartment can be tax-free

The sale of a property at a profit may be tax-free under certain circumstances. For example, when the object is used by oneself or by one’s own children. However, strict limits apply.

Anyone who sells a property profitably within ten years of purchase must pay tax on the profit. The so-called speculation period begins on the day the property is purchased. This is usually identical to the day on which the purchase contract was concluded. For example, a house purchased on March 31, 2010 can be sold from April 1, 2020 without incurring income tax.

However, if the property is used for residential purposes at the time of sale and for at least the two previous years, the tax liability does not apply. Self-use also occurs if the apartment is given to one’s own child free of charge.

The prerequisite for this, however, is that the child is still entitled to child benefit at the time of sale, clarifies Daniela Karbe-Gessler from the Taxpayers’ Association. In a specific case (Az.: IX R 28/21), the Federal Fiscal Court (BFH) denied a mother tax exemption for this reason.

The woman had bought an apartment at the children’s place of study. Two of her three sons used the apartment during their studies, the third son only used the apartment sporadically. Six years after the purchase, the woman sold the apartment at a profit, the two sons who were studying were already 27 years old at the time and therefore no longer entitled to child benefit – in contrast to the third son.

The BFH ruled that the tax exemption no longer applies. It is not enough if only one son receives child benefit. “Parents who leave their homes to their children free of charge and want to sell within the speculation period should therefore ensure that all children registered in the home can still receive child benefit,” advises Karbe-Gessler.

The amount of tax that is incurred on the sale of real estate varies from person to person. In contrast to shares or funds, where the withholding tax of 25 percent is due, the personal tax rate applies when selling a house or apartment.