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Taxation on selfused property is privileged in Germany

This article explains tax exemption for self-used (owner-occupied) flats in private ownership.
If the owner is a company you won’t qualify for this tax exemption. If the owner is a partnership under civil code (GbR) all owners should self-use the flat. A limited partnership (GmbH & Co. KG, or KG-structure) or limited company (GmbH, etc.) is a commercial entity due to German law, even if used solely for asset management purposes and won’t qualify for this tax exemption.

  1. Tax Exemption from capital gains tax on a rented (buy-to-let) property after ten years
    In Germany there is a capital gains tax on a property if sold before ten years of ownership.
  2. Privilege on self-used properties
    A widely unknown fact is that self-used properties are privileged and the ten years are reduced to one full year (from 01. Jan to 31. Dec of the same year).  However, the privilege is set very tide as §23 of German Income Tax Law explicitly says that the usage is only for “own living purpose”. So to leave the property empty doesn’t qualify for the reduction of holding period. In fact in some area’s of Germany keeping a flat empty could lead to a fine to be paid to the municipality, as this is seen as wrongful use. If you plan to count on this tax exemption, you should consult a tax advisor.
    NOTE: If you bought the property vacant and for yourself and used it all the time yourself, then there is no waiting holding period at all, just in case you self-use it after you rented it, then you should use it one full year on your own (1. Jan – 31. Dec), please be aware 12 months won’t be enough!
  3. Beneficiary taxation on inheritance between spouses
    If you plan to give property by inheritance to kids (living in your house), or spouses the German Tax Law has the institution of the so-called family home “Familienheim” which is the typically main residence that is free to inherit up to a certain amount. For deeper advise asking a tax advisor is highly recommended. (Familienheim, § 13 Abs. 1 Nr. 4c ErbStG)

About the author: Alexander Korte is a Berlin based residential property developer and active real estate investor and co-owner of a brokerage & advisory firm.