Taxes if house is credit free

67 posts in this topic

5 hours ago, AnymousGermany said:

The rental income has already taxed with the Einkommensteuer (income tax), why should it be taxed again when someone sells? 

 

You didn't understand the calculation. The rental profit does not get taxed again.

 

You have to tax:

profit from the sale selling price - "book" value of that apartment

with: "book" value = purchase price - all depreciations you made for a let apartment

 

Substitute the above term into the first equation:

 

profit from the sale = selling price - (purchase price - all depreciations you made for a let apartment)

 

profit from the sale = selling price - purchase price + all depreciations you made for a let apartment

 

Clearer now?

 

If you have owned the apartment for less than 10 years then imagine the apartment split up into the part you live in yourself, and the let part.

You will have to pay income tax on the profit on the part of the apartment that you had let.

 

**************************************

 

If you had owned the apartment for at least 10 years then it wouldn't have mattered whether a part of it was let or not, it could have been let entirely and the profit would still be tax free.

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The only case where it wouldn't make a difference would be if the house had been wholly occupied by a child for which you get Kindergeld, or in part by somebody else but you didn't ask for any rent (the other part of the house would have had to have been occupied by you!).

For details please see here (this is a summary of the official letter of the German Ministry of Finance on this topic, BMF Schreiben v. 5.10.2000): http://www.iww.de/zp/archiv/aktuelles-bmf-schreiben-besteuerung-privater-grundstuecksveraeusserungen-zweifelsfragen-geklaert-f32859

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Cheers PM. I'm getting myself confused now, I think. The house is in the UK so I probably need to get tax advice there when we start thinking about selling.

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Then you are in the wrong thread, this thread is about German real estate.

 

For your case of British real estate it doesn't matter at all how long you had owned it or who had lived in it, the profit always raises your German tax rate (= Progressionsvorbehalt), for details please read:

 

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3 minutes ago, PandaMunich said:

Then you are in the wrong thread, this thread is about German real estate.

 

Yeah, I realised that after you replied.

 

Moving along...

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Hi PandaMunich and all,

@PandaMunich Thanks for your great advice. I have read through this and also your other post on Overseas Property and they are both very helpful. My case is similar but at the same time has a few layers of complexities, which, judging by your replies with relish to previous questions, you can handle :)

 

I note your following previous statements:

 

"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."

 

 

With regards to these statements and your reference to §23 EStG, the primary point I am unsure about relate to the following:

 

- the impact of mixed business/residential use on taxes on the sale of the property,

- whether it matters that I actually have no Anmeldung in this property, even though I have been there since October 2015

- how splitting the property into two and selling part of it impacts taxes to be paid

- How split ownership impacts on these issues

- Whether or not I should go and get an Anmeldung asap.

 

Context

I am a UK Expat living in Berlin on and off since 2013. I have never had an Anmeldung in Berlin although I have been here more or less non-stop since June 2015.

 

I have bought a 100m2 1st floor Gewerbeeinheit in an Altbau Mehrfamilienhaus in Kreuzberg. It was a Praxis before I bought it and then was empty for two years. I bought in August 2015 and got the keys in October 2015. Since then I have been living in the property while I wade through the bureaucracy and begin renovations. I just had an Umnutzung accepted to split it into two separate properties: a 30m2 residential Wohnung and a 70m2 mixed use space where I will continue to live and also operate a 'Holistic Health' business, mostly in the massive 40m2 Vorderraum. The holistic health business will include me giving nutritions workshops and, perhaps of import for my questions: will allow people to come and stay in the space for weekends a a kind of 'Holistic Health Air BnB' so people can learn about health from their surroundings e.g. how to source and use kitchen equipment for making healthy food.

 

As soon as the 30m2 residential Wohnung is ready I intend to sell it to pay back my investment in setting up the business in the 70m2 mixed use Gewerbeeinheit. In a  few years, it is most likely that I will sell the 70m2 property either as an ongoing concern if it is raking money in, or, if not, I will apply for it to become a purely residential property and then sell it as a Wohnung. I expect to be able to sell it for a fair amount more than I paid for it die to my investment and due to ever increasing Berlin property prices.

 

To further complicate matters, although the business I am setting up is mine, the ownership of what is currently one property is as follows:

 

- 1/3 me

- 1/3 my father

- 1/3 my mother

 

Questions (if you're still with me):

 

30m2 new residential Wohnung

- Will I have to pay on any profit on the newly created 30m2 residential Wohnung?

- Should I get an Anmeldung so I can show that I lived in it from the very beginning of my purchase? Even though it doesn't exist as a separate property? Or does it now exist as I have the Umnutzung/Umwandung already accepted by the Bauaufsicht?

 

70m2 mixed use Gewerbeeinheit

- Does the fact that it is partly for business use mean I have no way of avoiding paying taxes on a sale?

- Can I retroactively get an Anmeldung for the Gewerbeeinheit or the 30m2 residential property considering I have actually been there since October 2015?

- Do I actually NEED an Anmeldung to show I have lived there for X amount of time? Or can I just use my ownership as proof and just explain that I have been living there and show utility bills in my name etc?

- Does the fact that some of the income will be coming from people actually sleeping there impact this equation somehow?

- Is is possible and perhaps advisable to change this Gewerbeeinheit into a residential property 3 years before I sell it in a scenario where I use it as a mixed use Gewerbeeinheit for the next 2 years and then sell it in 5 years?

 

Split ownership questions

- How does the split ownership affect the issues mentioned above?

- Will any profit calculations be split between the three of us?

- Will the fact that two of the owners have definitely never lived in the property impact on any tax free sale eligibility that I may accrue due to my as yet unsettled resident status?

 

Brexit questions

- Do you have any idea how Brexit might impact this? I don't think anyone knows this, above all the people who pushed for Brexit. 

 

General questions

- Is this sport way too big for a Toytown Germany post? : )

- Will you be my Steuerberater? If so message me. Pandas make the best tax advisors.

 

Thanks a lot for any help you can give Panda.

 

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Quote

30m2 new residential Wohnung

- Will I have to pay on any profit on the newly created 30m2 residential Wohnung?

- Should I get an Anmeldung so I can show that I lived in it from the very beginning of my purchase? Even though it doesn't exist as a separate property? Or does it now exist as I have the Umnutzung/Umwandung already accepted by the Bauaufsicht

If you backdate your registration to the moment you really moved in (which does have other implications, like having to have health insurance and having to pay the TV licence), the your profit on one third of the flat will be tax free.

 

You parents' share of the profit will however have to be taxed.

 

Quote

70m2 mixed use Gewerbeeinheit

- Does the fact that it is partly for business use mean I have no way of avoiding paying taxes on a sale?

- Can I retroactively get an Anmeldung for the Gewerbeeinheit or the 30m2 residential property considering I have actually been there since October 2015?

- Do I actually NEED an Anmeldung to show I have lived there for X amount of time? Or can I just use my ownership as proof and just explain that I have been living there and show utility bills in my name etc?

- Does the fact that some of the income will be coming from people actually sleeping there impact this equation somehow?

- Is is possible and perhaps advisable to change this Gewerbeeinheit into a residential property 3 years before I sell it in a scenario where I use it as a mixed use Gewerbeeinheit for the next 2 years and then sell it in 5 years

  1.  Your parents will have to tax the profit on their parts, on both residential/business parts. You will have to pay tax on the business part of your third of the property.
  2. Yes. They may also give you a 20€ fine for registering late.
  3. You need an Anmeldung.
  4. Yes, the rooms that you use for that would be part of the business part of the property.
  5. Yes. You should however know that the Finanzamt will come knocking anyway as soon as you change anything and ask for its share in the risen property price because of something called Betriebsaufspaltung, even if you don't sell at all. For details please read these threads.
Quote

Split ownership questions

- How does the split ownership affect the issues mentioned above?

- Will any profit calculations be split between the three of us?

- Will the fact that two of the owners have definitely never lived in the property impact on any tax free sale eligibility that I may accrue due to my as yet unsettled resident status

Answered above.

 

Quote

Brexit questions

- Do you have any idea how Brexit might impact this? I don't think anyone knows this, above all the people who pushed for Brexit.

No impact at all. Germany has a bilateral double taxation agreement regarding income tax with the UK, which does not depend on EU membership.

 

Quote

General questions

- Will you be my Steuerberater? If so message me. Pandas make the best tax advisors

Sorry, but I'm still just an engineer.

Though going by the number of times I get asked this question, maybe I really should look into taking the Steuerberater exam ;-) 

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@PandaMunich, you are one of TTs exceptional experts.  You know more than any Steuerberater most of us will ever encounter. Most of us can only hope that you might help with a dilemma and know that your advice is first class.  Thank you

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Hi @PandaMunich,

 

Thanks for your great advice. I see that the real problem is that my parents own two thirds so whatever I do I can only reduce tax on just one third. Is there anyway of just getting them to gift me their two thirds or something similar? I'm quite fed up with Berlin to be honest so I may just turn both parts into residential flats immediately and then sell up and leave Germany. The building works needed is essentially the same.

 

Questions on this possible plan:

 

1. Can my parents somehow gift me their two thirds of the property so I can retroactively Anmeldung myself as having lived there the whole time and then sell both properties tax free?

 

2. Does the fact that I submitted an Umnützung to the Bauaufsicht to split the property into a 30m2 residential flat and a 70m2 business property ruin the 'always my home and never business use' plan as the Finanzamt may use the accepted Umnützung Antrag as evidence that there was some business use and therefore reinstate tax liability? In my defense to such a claim, there has actually been no business use at all I have been doing is trying to arrange the renovations and wade through red tape and I haven't actually registered a business with the Gewerbeamt or anything.

 

3. Any idea if they can just amend an Umnützung like this? Or will they need to reconsider the whole application again and raise difficult questions?

 

4. Do you have a Steuerberater to recommend who can give advice like you? Or any tips on finding a god internationally knowledgeable adviser? All Steuerberaters I have spoken to have no idea about anything remotely international and seem quite incompetent.

 

Context to this possible change of plan:

 

The red tape has been a nightmare and today nine cars were firebombed on my street. I want to raise a family with my girlfriend and am not sure we/she would feel comfortable with this crazy anti-gentrification war going on on our doorstep.

 

Thanks again. Pandas and Monkeys make a great team : )

 

 

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  1. Yes, no problem. Each parent is allowed to gift you assets worth 400,000€ before gift tax is due.
  2. As long as you really did only use it to live in, it shouldn't be a problem. Just don't register a business at that address.
  3. It would be the same process again, there are no short-cuts.
  4. You could ask Thomas Zitzelsberger: http://www.toytowngermany.com/forum/topic/30645-expattax-thomas-zitzelsberger/
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Hi @PandaMunich,

 

Thanks for a very helpful and very prompt reply.  That's good news. I did phone Thomas Zitselberger's office one time but they wanted me to sign up to a $200 an hour contract for phone advice before even talking to me at all, which I didn't think was reasonable.

 

Regarding being a Steuerberater, you could actually be something like a Steuerberater rep where you do all the customer contact and then pay a Steuerberater to do what he/she legally has to do, where as in reality you are the one doing the leg work.f http://www.ordeconta.com/ uses this model, for example, and I think it works for him. I'd gladly be your first customer. : )

 

 

 

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On 3/24/2016, 4:55:06, PandaMunich said:

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

 

Dear PandaMunich,

 

A question on the ''no business use permitted!'' qualification above: we (me+wife) own and live in the apartment. Wife has a selbstständig job. We get a small tax credit for using a 20 sq.m. room in the apartment as a home office. Does that count as ''business use''? Grateful for any response,

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Edit: cyberJason edited his question after I had already answered. 

Before, he was asking about a flat in which a room has been sublet (= Untervermietung), no mention of a home office they use themselves.

This post therefore answers that initial sublet question.

 

Yes, sorry, in that case you would need to have owned that apartment for at least 10 years for the profit from the sale to be tax free.

 

The exception to the 10 year rule for "a house/flat only you have lived in" means just that: only you (or a child for which you still receive Kindergeld, see section "Verkauf nach Eigennutzung" in here) have to have lived there for the last 2 years.

 

 

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Dear PandaMunich,

 

Just a clarification to my issue. We are not running Gewerbe in/at the apartment.

Just using it an office to do work (she is selbstständig and works at home when a contract comes from an outside company).  

 

Perhaps relatedly, I did not manage to understand the child/Kindergeld bit in the reply. Due to our child, we have been receiving Kindergeld for the last five years we have owned the place.

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Regarding the child: if you don't live in it, but a child for which you still get Kindergeld lives in it instead (which boils down to a child at university), you would still get that exemption from the 10 year rule.

 

********************************************************

 

By the way, I do not appreciate people changing the question on me after I have written a response to it.

In your initial version of the question you were talking about subletting (Untervermietung), not a home office, so my answer referred to that.

 

The law §23 Absatz 1 Nr. 1 Satz 3 EStG clearly states that it has to be used for "own living purposes" (= "eigenen Wohnzwecken").

A home office doesn't fall under this.

 

Now that you have changed the question: evidently you didn't read the earlier posts in this thread, especially my post of 28. July 2016, or you would have known that you have bigger worries.

 

Basically, the profit on the room you use as an office will never be tax free, not even after 10 years, and even worse: you do not even have to sell in order to have to pay the income tax on that "profit".

As soon as you change anything, e.g. no longer use that home office, the Finanzamt will come knocking and ask for its share in the appreciated value. So you will have to shell out tax on a profit you haven't even taken in, just because the real estate values have risen in the meantime.

 

Please read up on Betriebsaufspaltung: https://www.google.de/?gws_rd=ssl#q=pandamunich+betriebsaufspaltung+site:toytowngermany.com

to get an idea why it is a bad idea to use a home office within a flat you own that is either:

  • more than 20% of your flat's area or
  • worth more than 20,500€ (even if it wasn't worth 20,500€ when you started using it, as soon as it passes that barrier, it becomes part of your business assets and the Finanzamt becomes a silent partner in your home office's appreciation in value, see  H4.2 Abs. 8 "Einlage" EStH "Einlage des Grundstücksteils im Zeitpunkt des Überschreitens der absoluten Wertgrenze -->BFH vom 21.7.1967 (BStBl III S. 752)" )

These values are set down in §8 EStDV

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19 hours ago, PandaMunich said:

Edit: cyberJason edited his question after I had already answered. 

Before, he was asking about a flat in which a room has been sublet (= Untervermietung), no mention of a home office they use themselves.

This post therefore answers that initial sublet question.

 

Yes, sorry, in that case you would need to have owned that apartment for at least 10 years for the profit from the sale to be tax free.

 

 

I think there has been a misunderstanding on who posted what.

 

I, cyberJason, never inquired on ''room has been sublet (= Untervermietung)''. My earliest post on this thread is from yesterday Jan 9 2017. Others in this thread have posted with content that includes the issue of subletting in this thread. Hence, it is not the case that the same forum participant (me or someone else) has changed the question.  

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This is a question pls for Panda or anyone else in the know. 

I own my flat and have not rented it out during ten years. But I have not been in Berlin much to use it- ie maybe 3-6 minths per year. Am I still exempt from cpital gains tax after ten years personal ownership although I have not actually been in Germany that much?

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51 minutes ago, Anouschka said:

This is a question pls for Panda or anyone else in the know. 

I own my flat and have not rented it out during ten years. But I have not been in Berlin much to use it- ie maybe 3-6 minths per year. Am I still exempt from cpital gains tax after ten years personal ownership although I have not actually been in Germany that much?

 

The first question would be whether you are even taxable in Germany.

If you only ever visit, i.e. do not come to Germany with the intention to stay, then as long as you only stay less than 6 months, you do not normally underlie unlimited taxation by Germany, see §9 AO in conjunction with §1 EStG.

However, for real estate Germany has some standard clauses it writes into nearly all its double taxation agreements which give the taxation right on the profit from the sale (= Veräußerungsgewinn) to the country the flat is in, in this case to Germany since the flat is in Berlin.

But you would have to look at the specific double taxation agreement between Germany and the country that you are resident in in order to be 100% sure.

 

If that double taxation agreement assigns the taxation rights to Germany then as long as only you used it for living purposes you should be in the clear, i.e. standard German rules apply and you do not have to pay German income tax on the profit, see the last paragraph in this PWC article.

 

However, you would then also have to ask the country you are resident in whether they have a construct like the German Progressionsvorbehalt, which would mean that you would have to tell your country's tax department about that profit. If they do have something like Progressionsvorbehalt, it would then not be taxed again, but it raise your tax rate in that other country on your other income.

 

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On 29/07/2016, 00:39:38, PandaMunich said:
  1. Yes, no problem. Each parent is allowed to gift you assets worth 400,000€ before gift tax is due.
  2. As long as you really did only use it to live in, it shouldn't be a problem. Just don't register a business at that address.
  3. It would be the same process again, there are no short-cuts.
  4. You could ask Thomas Zitzelsberger: http://www.toytowngermany.com/forum/topic/30645-expattax-thomas-zitzelsberger/

 

 

Hi Panda Munich,

 

I hope you are well and bamboo is plenty. This question relates to my earlier posts from this topic:

 

I earlier asked you about the possible tax implications of selling my property, which is owned a third by me, a third by my mother and a third by my father. I am now negotiating to employ a Steuerberater. He has suggested the following:

 

- that we will be taxed as a community on any income made by subletting the 30m2 part of the flat or business use of the property.

- that he probably need to submit a tax return for each one of us separately, in which case he will charge me a lot more money because he will have to handle three tax returns.

- that if he is able to just submit one tax return, then it might be a question of them essentially donating their share of the profits to me so I can be taxed on them. He is not sure about this and wants a load of cash to fins out the answer.

 

In return I have told him the following:

- As I am receiving all the money, I want to be the only one who has to submit a tax return so that my parents are not hassled, to avoid extra confusion and to avoid paying much higher Steuerberater fees. As owners in the Grundbuch, my parents were automatically allocated a Steuernummer, but I thought this was because I have not actually contacted the tax authorities in any way since I bought the property in questions in October. What I have done since our conversation last year is to get an Anmeldung as Hauptwohnsitzer at this property. I backdated it to the day of the Schlusselübergabe in case I just want to sell everything soon and avoid paying capital gains tax based on the fact that I have still not used the property for business purposes. I have just lived there.

 

Any clarity on this would be great. As always, your expert advice is greatly appreciated by all.

 

Best,

 

Paul

 

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