Capital gains tax

Capital Gains Tax - Capital gains tax is the colloquial term for the taxation of profits from the sale of real estate, which is regulated under German tax law as the tax on private sales transactions pursuant to Section 23 of the Income Tax Act (EStG). It becomes due when a property is sold at a profit within the ten-year speculation period. The capital gain is subject to the seller’s personal income tax rate - and can result in a significant tax burden in cases of high capital appreciation, which must be factored into the sales plan.

Calculation and Tax Rates

The taxable capital gain is calculated as the sale price minus:

• Acquisition costs: Purchase price plus all incidental costs (real estate transfer tax, notary and brokerage fees upon initial purchase)
• Subsequent construction and modernization costs (bathroom renovation, roof renovation, heating system replacement) that were capitalized as subsequent construction costs
• Expenses incurred in connection with the sale (brokerage commission, appraiser fees, costs for renovations to prepare the property for sale)

Note: Depreciation (AfA) already claimed is added back to the profit, as it has reduced the tax basis-this effect is known as “depreciation reversal” and is often underestimated by owners.

The calculated profit is taxed at the personal income tax rate-which ranges from 14% to 45% depending on income, plus the solidarity surcharge (5.5% of income tax) and, if applicable, church tax. With a marginal tax rate of 42% and a capital gain of 100,000 euros, the tax burden thus amounts to approximately 42,000 euros plus ancillary charges. Losses from private sales transactions can only be offset against gains from similar transactions in the same or one of the following years.

Tax Exemptions and Planning Options

The most important exception to capital gains tax is owner-occupancy: If the property was used exclusively for the owner’s own residential purposes in the year of sale and the two preceding calendar years, the gain remains tax-free-regardless of the holding period. Use at the beginning and end of the respective year is sufficient; continuous use over all three years is not required.

After the 10-year period has expired (calculated from the notarized purchase agreement to the notarized sale agreement-not from the land registry entry or payment of the purchase price), the profit is generally tax-free. For inherited real estate, the decedent’s period of ownership is taken into account-if the decedent acquired the property more than 10 years ago, the heir may sell it immediately tax-free.

Relevant structuring options:

• Timing: Sale after the 10-year period has expired or after at least 2 years of owner-occupancy-significant tax savings in each case
• Allocation to spouses: For joint owners (civil law partnership/fractional ownership), the profit is split equally and taxed at each owner’s individual tax rate-this can reduce the overall tax burden if income levels differ
• Loss Offset: Use planned losses from other private sales transactions in the same year as a contra entry

Note on Commercial Status: Anyone who sells more than 3 properties within 5 years is classified as a commercial real estate dealer - in this case, additional trade tax and sales tax apply, and the 10-year tax exemption is retroactively revoked.

Capital gains tax on gifts and inheritances

If a property is gifted and resold by the recipient within the capital gains tax period, the recipient assumes the donor’s tax status-the capital gains tax period begins from the date of the donor’s original acquisition. The same applies to inheritance: The heir assumes the decedent’s acquisition costs and date of acquisition. Thus, anyone who inherits a property that has been owned by the decedent for 15 years can sell it immediately tax-free.

Practical Tip for Property Owners in Nuremberg

We recommend that property owners in Nuremberg carefully calculate the tax implications before selling. Especially in neighborhoods that have seen significant appreciation in recent years-such as Gostenhof, St. Johannis, or Maxfeld-capital gains can be substantial. Someone who purchased a condominium in Gostenhof in 2016 for 200,000 euros and wishes to sell it in 2025 for 400,000 euros would face-depending on depreciation claimed-a taxable profit of 180,000-200,000 euros, which at a top tax rate of 42% amounts to approximately 80,000 euros in taxes.

We prepare a detailed profit forecast taking all deductible costs into account and coordinate the optimal timing of the sale with your tax advisor. For rented properties, we examine whether tax exemption can be achieved through temporary owner-occupancy prior to the sale. The Nuremberg Chamber of Tax Advisors can refer you to specialized real estate tax consultants if needed.

Frequently Asked Questions

How exactly is the 10-year capital gains tax deferral period calculated?

The period begins on the date of the notarized purchase agreement (not the land registry entry or payment of the purchase price) and ends on the date of the notarized sales agreement. Calculated to the day: Anyone who purchased on March 15, 2016, can sell tax-free starting on March 16, 2026. In the case of inheritances, the decedent’s period of ownership is taken into account; in the case of gifts, the donor’s period of ownership is taken into account. The period is not extended by interim rental or vacancy.

Can I reduce capital gains tax through renovation costs?

Yes, all value-enhancing measures taken during the period of ownership reduce the taxable gain, provided they are classified as subsequent construction costs. These include bathroom renovations, heating system upgrades, roof renovations, and facade insulation. Pure maintenance expenses (cosmetic repairs, minor repairs) that have already been deducted as income-related expenses do not further reduce the capital gain. Expenses incurred within the first 3 years after acquisition that exceed a total of 15% of the building’s acquisition cost are generally considered acquisition-related construction costs (Section 6(1)(1a) of the Income Tax Act).

Are there any tax-free allowances for capital gains tax?

For private sales transactions, a threshold (not a tax-free allowance) of 1,000 euros per year applies (since 2024). If the total profit from private sales transactions in a given year is below this threshold, it remains tax-free. If the limit is exceeded by even one euro, the entire profit is taxable-not just the amount exceeding the limit. Since profits from real estate sales are generally well over 1,000 euros, this exemption limit is of little practical significance.

What happens if I previously rented out the property myself and claimed depreciation?

If depreciation was claimed, this reduces the property’s tax basis. Upon sale, the cumulative depreciation is added back to the capital gain-known as depreciation recapture. Example: Purchase price of €300,000 for the building portion, depreciation over 10 years at 2% per year = €60,000 - this increases the taxable profit by exactly €60,000. Anyone who has claimed depreciation over many years must therefore expect a correspondingly higher tax burden if the property is sold within the speculation period.

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