Speculation Tax on Real Estate Sales
When selling real estate within the so-called ten-year period, private owners and investors may be liable for speculation tax, representing a significant tax trap. This tax is levied on the profit from the difference between the purchase and selling price (§ 23 Income Tax Act, EStG).
Period
The speculation tax applies when the property is sold within ten years of purchase. The period starts with the notarized purchase date and ends exactly ten years later.
Calculation
The taxable profit is the difference between the selling price and the original purchase price. This profit is then subject to the personal income tax rate, which can result in a burden of over 40% for high incomes.
Exceptions
If the property is used by the owner themselves (at least in the year of sale and in the two preceding calendar years), no speculation tax will apply – even if the ten-year period has not yet expired.
Special Features in Forced Auctions
The same tax principles apply in forced auctions as in regular sales: a gain from the sale within the ten-year period is generally also subject to speculation tax. Here, the date of the contract conclusion or the auction award counts as the critical point for the start or end of the period.
Profits from a forced auction can thus be taxable if realized within this period.
Financial Impacts
The consequence of a speculative sale (within ten years) can be a significant financial burden:
- High back payments from the tax authorities on the profit achieved
- For high-earning sellers, five to six-figure amounts may be due as tax
- This applies to both regular sales and disposals in the context of forced auctions
In summary, private owners and investors should definitely check whether the ten-year period has been adhered to or if self-use exists when selling real estate – especially in the case of potential or actual forced auctions. Otherwise, significant tax back payments may threaten due to the application of the speculation tax on profits from private disposals.