Taxes if house is credit free

56 posts in this topic

Hi we will finish paying our mortgage off next year (yippee) but now people are telling us that our house should never be credit free as we will have to pay more tax( some say vermögen steuer and various other steuern) we have googled but cannot find any such tax anybody out there know if there is any truth in this?

0

Share this post


Link to post
Share on other sites

Not true, they were pulling your leg. The only tax you have to pay is the Grundsteuer (around 300€ a year) which you have already been paying every year.

4

Share this post


Link to post
Share on other sites

...you may also have to pay tax on any profit you make if (when) when you sell it, but only if it is sold within 10 years of purchase and was not a commercial purchase.

 

There used to be a "Vermögensteuer" or tax on capital wealth (value of assets and cash less debts) but it was removed in 1995 although some people would welcome its return.

1

Share this post


Link to post
Share on other sites

Correction/Clarification: you pay tax on the profit on a house sale if it was a private purchase and you sell within 10 years OR it was a commercial purchase (Thanks PandaMunich!)

0

Share this post


Link to post
Share on other sites

 

Correction/Clarification: you pay tax on the profit on a house sale if it was a private purchase and you sell within 10 years

 

I don't believe this is even the case any longer (if it is your primary residence).

1

Share this post


Link to post
Share on other sites

Right. This is one of the biggest urban myths about life in Germany. One that refuses to go away no matter how often the relevant legislation and tax instructions or whatever are referenced here. If you've lived in it as your own private dwelling, no tax on any gain. How long is irrelevant (unless possibly you've some hybrid of part living there part renting).

 

The tax and the 10 year rule relates to speculative investment (most obviously a rental property). The Finanzamt instructions on how to fill out the relevant form (Anlage SO) specifically state that that one's own private lived-in dwelling is exempt from this.

 

To the OP - In most things, but particularly on tax, where a lot of people hook on to the worst scenario: Inform yourself rather than going on what your next door neighbour or whoever said about something that they "heard" or is not true or that was in 1960 or that applied to someone in a different situ than you. Read the relevant Finanzamt instructions, do some internet research (I mean as well as this) and all the rest.

 

I've never had a mortgage here and no, I don't pay special property tax. I don't even consider Grundsteuer relevant to owning because that is really related to occupancy - I'd still pay that if I were renting too.

1

Share this post


Link to post
Share on other sites

Ok, let's go back to the law on this, §23 EStG:

 

 

(1) Private Veräußerungsgeschäfte (§ 22 Nummer 2) sind:

 


  • Veräußerungsgeschäfte bei Grundstücken und Rechten, die den Vorschriften des bürgerlichen Rechts über Grundstücke unterliegen (z. B. Erbbaurecht, Mineralgewinnungsrecht), bei denen der Zeitraum zwischen Anschaffung und Veräußerung nicht mehr als zehn Jahre beträgt.

  • Ausgenommen sind Wirtschaftsgüter, die im Zeitraum zwischen Anschaffung oder Fertigstellung und Veräußerung ausschließlich zu eigenen Wohnzwecken

  • oder im Jahr der Veräußerung und in den beiden vorangegangenen Jahren zu eigenen Wohnzwecken genutzt wurden;

 

That 10 year rule wasn't always in place, before 1999 it was just a minimum 2 year holding period, for the historical development have a look here.

 

So, to break this up into the above three cases cited in the law:

 



  • you sell a house/apartment in which you didn't live yourself, e.g. it stood empty all the time or was rented to somebody:
    the profit (= Spekulationsgewinn) is only tax free if you sell it 10 years or more after the date you bought it

  • you sell a house only you lived in:
    the profit is always tax free, no matter how soon you sell it (no minimum holding period).

  • you sell a house/apartment that was rented to someboday, but in the period before you sold it, you moved in and used it yourself:
    the profit is only tax free if you had been living in it at least in the year you sold it and in the last two full calendar years. Example: you sell in 2011 a house/apartment you had previously rented out, this means that in order for the profit to be tax free, you would have had to have moved into that house/apartment on 31. December 2008 at the very latest (--> full year 2009, full year 2010, rump year 2011 until the date you sold).

 

5

Share this post


Link to post
Share on other sites

And in case you do sell it without having lived in it and before 10 years, what's considered as taxable profit?  What you payed minus what you are selling it for obviously but what about expenses to buy the house / provision / renovation  works etc.? Is any of this things  part of the calculation? 

 


thanks

0

Share this post


Link to post
Share on other sites

Taxable income if you sell a house that's not your primary residence after less than 10 years =

=   price you bought it for

     + if you had rental income from it: any amounts you depreciated it during the years

     - Makler, Notar when you bought it

     - any renovation costs that you can prove and that you did not already claim as part of a rental profit calculation over the years

     - price you are selling it for

1

Share this post


Link to post
Share on other sites

Thanks Panda, I'm not sure I understand couple of things, I might be missing some background here: 

 

+ if you had rental income from it: any amounts you depreciated it during the years. 

this I don't get. 

 

and


 - any renovation costs that you can prove and that you did not already claim as part of a rental profit calculation over the years 

I didn't know I could even do that. You mean on my taxes I can detract some of the renovation expenses from my rental income? 


And I thought the Makler, Notar and the renovation cost would be summed to the price I bought it for and then the total detracted from the price I'm selling it for... ? I guess I'm quite lost here. ;-) 

0

Share this post


Link to post
Share on other sites

You're right, the first and last terms should be interchanged.

 

Taxable income if you sell a house that's not your primary residence after less than 10 years =

=   price you are selling it for

     + if you had rental income from it: any amounts you depreciated it during the years

     - Makler, Notar when you bought it

     - any renovation costs that you can prove and that you did not already claim as part of a rental profit calculation over the years

     - price you bought it for

 

Let's do this stepwise.

If you only bought and the sold the house, the profit on that sale would be:

selling price 

- price you bought it for

 

If you had rented it out, then you would have deducted any repair costs from your rental profit. Only fir rented out properties can you claim for repair costs. In that case you cannot use them again for reducing the price on the sale.

If you hadn't rented it out then - if you can prove these repair costs by invoices the yes, they will reduce the profit on the sale. 

 

If you had rented it out, you would have depreciated 2% of the pure building price, i.e. reduced your rental profit by them. In that case you have to anul all those former depreciations by adding them to your sale profit. 

In accounting terms: at the start, the book value of your house was the price you bought it for. Then every year the book price was lowered by a depreciation. The new book value now is:

buying price - (no. of years * yearly depreciation amount)

 

The proper accounting way of calculating the sale profit is:

selling price

- book value at the moment of the sale

= selling price

- (buying price - all depreciations)

= selling price 

- buying price

+ all depreciations

3

Share this post


Link to post
Share on other sites

Thanks Panda, always fantastic. 
So in a practical scenario, just to check that I'm getting this right and that my infos are accurate: 

I buy a flat for 50.000 €. 
I pay notary, taxes, commission (7.14) so an approx. 14% if I have my facts straights = 7.000€
I renovate the place and keep invoices of all I spend = 10.000€


Tot: 67.000€

I don't rent it but sell it right after for 80.000€.

now:

A - I live in it for a few months and then sell it: I PAY ZERO TAXES. 

B -  I DO NOT live in it ever (or rent it out) just sell it straight after: I pay taxes on 80.000 - 67.000 = 13.000 €


Is this correct, or for instance the taxes I payed when purchased the flat do not count at all? 

As well, I'd be paying taxes depending on my overall income that fiscal year right? So if I earned let's say another 10.000 with my freelancing I'd be paying taxes for an annual income of 23.000? 


Sorry if this is a bit gross, just trying to understand with a practical situation but I'm a bit new to this. 



 

1

Share this post


Link to post
Share on other sites

A. No, you need to have lived in it for during the year you sold it, plus in the 2 preceding years.

 

Example:

If you sell it in January 2016, you need to have lived in it yourself at the very least on 31. December 2014 (that takes care of 2014), all of 2015 and all the days in 2016 until you sell it.

 

B. Apart from the fact that you cannot deduct the Grunderwerbsteuer (= tax when buying a flat/house) and therefore would pay income tax on 16,500€, correct.

By the way, most Bundesländer have raised the Grunderwerbsteuer to 5% and more.

0

Share this post


Link to post
Share on other sites

Ah thanks Panda, I misunderstood then when a few posts above you said: 

 

you sell a house only you lived in:
the profit is always tax free, no matter how soon you sell it (no minimum holding period). 

 

And ok, so the Grunderwerbsteuer (6% in Berlin!) can't be deduct when calculating the sale profit.  

0

Share this post


Link to post
Share on other sites

No, if only you ever lived in it (and you didn't just, for example, leave it empty) the profit is always tax-free, even if you sell it the next day.

 

The 2 year period is for more complicated cases, i.e. if you let a relative live in the flat or had previously rented it out then you need to live afterwards in it yourself for those 2 years in order for the flat/house to get back the primary residence status, i.e. the tax-free status.

2

Share this post


Link to post
Share on other sites

I guess if just one room in the house was rented to someone with a regular contract that wouldn't count as long as you (the owner) have been resident in the house the all time as well right? 

0

Share this post


Link to post
Share on other sites

Nope, sorry.

In order for you to profit from the tax exemption on the profit from the sale only you and your family need to have lived in that house (no business use permitted!) from the date that you bought it till the day you sold it, or in the year of the sale + the whole previous year + at least a day in the year before that (so as long as the rental took place before that, you're in the clear).

 

No matter whether you ever lived in the house yourself or not, the profit will be tax exempted if you owned the house for at least 10 years. 

This means that the minimum holding period for tax exemption for investment properties is 10 years.

2

Share this post


Link to post
Share on other sites
On 7/14/2015, 6:34:44, PandaMunich said:

Taxable income if you sell a house that's not your primary residence after less than 10 years =

=   price you bought it for

     + if you had rental income from it: any amounts you depreciated it during the years

     - Makler, Notar when you bought it

     - any renovation costs that you can prove and that you did not already claim as part of a rental profit calculation over the years

     - price you are selling it for

 

Thank you for the answer PandaMunich, 
the rental income has already taxed with the Einkommensteuer (income tax), why should it be taxed again when someone sells? 

0

Share this post


Link to post
Share on other sites
On 11/3/2011, 10:48:56, PandaMunich said:

Ok, let's go back to the law on this, §23 EStG:

 

 

That 10 year rule wasn't always in place, before 1999 it was just a minimum 2 year holding period, for the historical development have a look here.

 

So, to break this up into the above three cases cited in the law:

 


  •  
  • you sell a house/apartment in which you didn't live yourself, e.g. it stood empty all the time or was rented to somebody:
    the profit (= Spekulationsgewinn) is only tax free if you sell it 10 years or more after the date you bought it
     
  • you sell a house only you lived in:
    the profit is always tax free, no matter how soon you sell it (no minimum holding period).
     
  • you sell a house/apartment that was rented to someboday, but in the period before you sold it, you moved in and used it yourself:
    the profit is only tax free if you had been living in it at least in the year you sold it and in the last two full calendar years. Example: you sell in 2011 a house/apartment you had previously rented out, this means that in order for the profit to be tax free, you would have had to have moved into that house/apartment on 31. December 2008 at the very latest (--> full year 2009, full year 2010, rump year 2011 until the date you sold).

 

thank you for the explanation, I'm wondering how does counts the 10 years rule count, if I have a shared apartment where I live myself and rent the other room(s).

0

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now