sorta unique house sale/ divorce/ tax question

6 posts in this topic

So I have a sort of unique question regarding taxes and divorce and house sales that hopefully someone can help me out with. I already used the search function but didnt see anything pertaining to my situation. So here it goes:

 

Wife (who is German) and I (American) move back to Germany in early 2017. We sell our home in the California and buy a home here in Germany outright with no mortgage in the end of 2017. House was listed for 390K euro and when it was all said and done it was about 425K ish euro after Makler and Notar fees. 

 

Wife and I are now separated, still really good friends but wont be getting back together. Ive moved out into my own apartment but have not yet registered because we are trying to figure out what to do with the house and tax issues. We are still married on paper and for all anyone in the government knows, I live in the house with her. The house also has a small apartment attached to it that we rent out for 500euro a month.

 

Wife wants to buy my half of the house from me as she hates moving and likes the house. Ive tried to tell her thats a poor decision on her part financially to take a loan for 250K to give to me on a single income and we could probably sell the house for 550K-600k (we did some renovations and the market has gone way up. just my estimation). I told her I could walk away from it for 250K euro though if she's that passionate about it. I would then wire the money to my american investment account.

 

What's smarter tax wise? both of us selling the house and splitting it 50/50 or her buying me out? My argument was we took money which we already paid taxes on in the states and bought a home here with it. If I dont really profit off the home ie just get my half of the money out, do I still have to pay taxes to the Germans for 250k since I sort of already paid taxes on it years ago in the states? Or am I going to have to pay the germans like 25% tax on my 250K. I am 100% with the VA and live on that income which is not taxed here in Germany but I know can be used to jump me into another tax class.

 

Just curious on anyone's thoughts. I know we will need to speak to a German tax person, just wanted to get a general consensus on the idea before hand. All of this is new to me and not my area of expertise. 

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I'm not a tax advisor, or a lawyer - just a dual national German/US-citizen owning real estate in Germany and the USA. So, please verify anything I may tell you here with somebody who really knows.

 

Your "battleground" as far as taxes go will be more with the IRS, than with Finanzamt

 

Sale of your primary residence (doesn't matter where in the world it is located) has tax implications for US-citizens (and GreenCard holders, if your wife still has that or if you are filing jointly). 

https://turbotax.intuit.com/tax-tips/home-ownership/tax-aspects-of-home-ownership-selling-a-home/L6tbMe3Dy#:~:text=It%20depends%20on%20how%20long,free%20amount%20doubles%20to%20%24500%2C000.

 

The sale of rental property (anywhere in the world) also has tax implications for US-citizens, albeit different ones.
https://www.investopedia.com/articles/personal-finance/121415/how-prevent-tax-hit-when-selling-rental-property.asp

 

In Germany the sale of your primary residence is tax free. Sale of a rental property is only tax free, if you held it for over ten years.

 

So, from the tax point of view, I would recommend to NOT sell the rental property now, and to sell (your half) of the primary residence (without the rental apartment) at less than $250,000 profit - to your wife/ex-wife.

 

Make this part of your divorce "contract".

 

If your wife doesn't have enough money to come up with the purchase price in one lump sum, and you can afford to help her out, you could set up some kind of a payment plan. 

 

 

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1 hour ago, karin_brenig said:

I'm not a tax advisor, or a lawyer - just a dual national German/US-citizen owning real estate in Germany and the USA. So, please verify anything I may tell you here with somebody who really knows.

 

Your "battleground" as far as taxes go will be more with the IRS, than with Finanzamt

 

Sale of your primary residence (doesn't matter where in the world it is located) has tax implications for US-citizens (and GreenCard holders, if your wife still has that or if you are filing jointly). 

https://turbotax.intuit.com/tax-tips/home-ownership/tax-aspects-of-home-ownership-selling-a-home/L6tbMe3Dy#:~:text=It%20depends%20on%20how%20long,free%20amount%20doubles%20to%20%24500%2C000.

 

The sale of rental property (anywhere in the world) also has tax implications for US-citizens, albeit different ones.
https://www.investopedia.com/articles/personal-finance/121415/how-prevent-tax-hit-when-selling-rental-property.asp

 

In Germany the sale of your primary residence is tax free. Sale of a rental property is only tax free, if you held it for over ten years.

 

So, from the tax point of view, I would recommend to NOT sell the rental property now, and to sell (your half) of the primary residence (without the rental apartment) at less than $250,000 profit - to your wife/ex-wife.

 

Make this part of your divorce "contract".

 

If your wife doesn't have enough money to come up with the purchase price in one lump sum, and you can afford to help her out, you could set up some kind of a payment plan. 

 

 

 

Thank you, I appreciate the detailed reply. The problem is the rental property is part of the house. Can I just sell my half for the 250K and "give" her the rental property?

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2 hours ago, Petro6golf said:

 

Thank you, I appreciate the detailed reply. The problem is the rental property is part of the house. Can I just sell my half for the 250K and "give" her the rental property?

 

I suggest you stay a 50% owner of the rental property - report your half of the rental income on your taxes (both Germany and USA). 

 

Or, if you really want "out", you could sell the rental portion to your wife too - and pay taxes on capital gains, and depreciation recapture, in the US - and whatever the taxes in Germany would be on that. 

I avoid selling any rental property, so I don't have personal experience with that.

 

You owned the house since 2017 - so the "damage" may be minimal in your case.

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6 hours ago, Petro6golf said:

Wife (who is German) and I (American) move back to Germany in early 2017. We sell our home in the California and buy a home here in Germany outright with no mortgage in the end of 2017. House was listed for 390K euro and when it was all said and done it was about 425K ish euro after Makler and Notar fees

 

Wife and I are now separated, still really good friends but wont be getting back together. I've moved out into my own apartment but have not yet registered because we are trying to figure out what to do with the house and tax issues. We are still married on paper and for all anyone in the government knows, I live in the house with her. The house also has a small apartment attached to it that we rent out for 500euro a month.

 

Wife wants to buy my half of the house from me as she hates moving and likes the house. Ive tried to tell her thats a poor decision on her part financially to take a loan for 250K to give to me on a single income and we could probably sell the house for 550K-600k (we did some renovations and the market has gone way up. just my estimation). I told her I could walk away from it for 250K euro though if she's that passionate about it. I would then wire the money to my american investment account.

 

What's smarter tax wise? both of us selling the house and splitting it 50/50 or her buying me out? My argument was we took money which we already paid taxes on in the states and bought a home here with it. If I dont really profit off the home ie just get my half of the money out, do I still have to pay taxes to the Germans for 250k since I sort of already paid taxes on it years ago in the states? Or am I going to have to pay the germans like 25% tax on my 250K. I am 100% with the VA and live on that income which is not taxed here in Germany but I know can be used to jump me into another tax class.

 

You need to either:

  • sell your half of the house right away, i.e. so that you are selling in a year in which you had still also lived in the house yourself, in which case you will not have to tax the profit that you make on the house,
    or
  • hold on to the house until more than 10 years have elapsed since the purchase (the dates of the contracts matter) to not have to tax the profit.

If you already moved out in 2020 and now sell your half of the house to your wife in 2021, then you will have to tax the profit of with your own personal, variable income tax rate of up to 42% in your 2021 German tax return.

 

Please also read: https://translate.google.com/translate?hl=&sl=auto&tl=en&u=https%3A%2F%2Fwww.mainz-kwasniok.de%2Fgemeinsames-haus%2Fspekulationssteuer-falle%2F

 

6 hours ago, Petro6golf said:

The house also has a small apartment attached to it that we rent out for 500euro a month.

 

You will - if you sell it within 10 years of buying it - always have to tax the profit you make from selling your half of the rental apartment, with your own personal, variable income tax rate of up to 42%.

 

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

 

If the two properties are not separate, then you have a "gemischt genutztes Grundstück" = "mixed use property".

Grundstück" in tax-speak can mean both simple land, or land with a building on it, don't think about it, that's just their terminology.

So you have 2 parts:

  • self-used house, with percentage = Nutzfläche_house / total_Nutzfläche_house_and_apartment
  • apartment, with percentage = Nutzfläche_apartment / total_Nutzfläche_house_and_apartment

Nutzfläche is more than the living area, it also includes the cellar, attic, balcony and terraces: https://www.immobilienscout24.de/wissen/bauen/nutzflaeche.html#anchor3

 

Source: https://www.smartsteuer.de/online/lexikon/p/private-veraeusserungsgeschaefte/#D063064400009

  • Bei der Veräußerung eines gemischt genutzten Grundstücks gilt die Vergünstigung auch für den zu eigenen Wohnzwecken genutzten Gebäudeteil (BMF vom 5.10.2000, BStBl I 2000, 1383, Rz. 16). Der Grund und Boden ist dabei nach dem Verhältnis der Nutzflächen des Gebäudes auf den zu eigenen Wohnzwecken genutzten Gebäudeteil aufzuteilen (BMF vom 5.10.2000, BStBl I 2000, 1383, Rz. 18).
  • In the case of the sale of a mixed-use property, the relief also applies to the part of the building used for own residential purposes (BMF of 5.10.2000, BStBl I 2000, 1383, marginal no. 16). The land is to be divided between the part of the building used for own residential purposes in proportion to the usable floor space of the building (BMF of 5.10.2000, BStBl I 2000, 1383, marginal no. 18).

 

Example:

  • Nutzfläche self-used house = 240m²
  • Nutzfläche let apartment = 60m²

--> profit from sale of apartment:

  • 60/(240+60) * (250,000€ - 0.5*425,000€) = 7,500€

--> you will have to tax 7,500€ profit with your own personal, variable income tax rate of up to 42%.

 

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3 hours ago, PandaMunich said:

 

You need to either:

  • sell your half of the house right away, i.e. so that you are selling in a year in which you had still also lived in the house yourself, in which case you will not have to tax the profit that you make on the house,
    or
  • hold on to the house until more than 10 years have elapsed since the purchase (the dates of the contracts matter) to not have to tax the profit.

If you already moved out in 2020 and now sell your half of the house to your wife in 2021, then you will have to tax the profit of with your own personal, variable income tax rate of up to 42% in your 2021 German tax return.

 

Please also read: https://translate.google.com/translate?hl=&sl=auto&tl=en&u=https%3A%2F%2Fwww.mainz-kwasniok.de%2Fgemeinsames-haus%2Fspekulationssteuer-falle%2F

 

 

You will - if you sell it within 10 years of buying it - always have to tax the profit you make from selling your half of the rental apartment, with your own personal, variable income tax rate of up to 42%.

 

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

 

If the two properties are not separate, then you have a "gemischt genutztes Grundstück" = "mixed use property".

Grundstück" in tax-speak can mean both simple land, or land with a building on it, don't think about it, that's just their terminology.

So you have 2 parts:

  • self-used house, with percentage = Nutzfläche_house / total_Nutzfläche_house_and_apartment
  • apartment, with percentage = Nutzfläche_apartment / total_Nutzfläche_house_and_apartment

Nutzfläche is more than the living area, it also includes the cellar, attic, balcony and terraces: https://www.immobilienscout24.de/wissen/bauen/nutzflaeche.html#anchor3

 

Source: https://www.smartsteuer.de/online/lexikon/p/private-veraeusserungsgeschaefte/#D063064400009

  • Bei der Veräußerung eines gemischt genutzten Grundstücks gilt die Vergünstigung auch für den zu eigenen Wohnzwecken genutzten Gebäudeteil (BMF vom 5.10.2000, BStBl I 2000, 1383, Rz. 16). Der Grund und Boden ist dabei nach dem Verhältnis der Nutzflächen des Gebäudes auf den zu eigenen Wohnzwecken genutzten Gebäudeteil aufzuteilen (BMF vom 5.10.2000, BStBl I 2000, 1383, Rz. 18).
  • In the case of the sale of a mixed-use property, the relief also applies to the part of the building used for own residential purposes (BMF of 5.10.2000, BStBl I 2000, 1383, marginal no. 16). The land is to be divided between the part of the building used for own residential purposes in proportion to the usable floor space of the building (BMF of 5.10.2000, BStBl I 2000, 1383, marginal no. 18).

 

Example:

  • Nutzfläche self-used house = 240m²
  • Nutzfläche let apartment = 60m²

--> profit from sale of apartment:

  • 60/(240+60) * (250,000€ - 0.5*425,000€) = 7,500€

--> you will have to tax 7,500€ profit with your own personal, variable income tax rate of up to 42%.

 

 

I appreciate the reply. I will look into this further. I really appreciate it

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