Speculation tax on apartment for married couple
There is a new decision on this in a court case that we want to report on today.
The case: A family and their real estate investment
A married couple is fighting the tax office for speculation tax on the profit from the sale of an apartment in which the wife’s mother lived. This is because the Income Tax Act clearly stipulates that a property can be sold tax-free after two years and one day of owner-occupation. If you let your child live in a purchased property, this also counts as owner-occupation. The family therefore assumed that this also applies to the wife’s mother, in accordance with the principle of equality.
The couple invests in an apartment in 2009 for €177,300 and the wife’s mother lives in the apartment without paying rent. After the mother’s death, they decide to sell the apartment for €220,000 in 2017. However, the tax office demands speculation tax on the profit of €42,700.
The argumentation of the tax office
The tax office argues that the sales period from 2009 to 2017 is not ten years. The exemption from speculation tax for owner-occupation (two years and one day before sale) does not apply, as it was not the couple themselves but their mother who lived in the apartment. The couple did not agree with this and took legal action against the tax office’s decision before the Düsseldorf Fiscal Court under case number 14 K 1525/19 E, F.
The court case
The tax court in Düsseldorf rules in favor of the tax office. The tax court argues that the apartment was not used “for own residential purposes” and that the special regulation of own use by a child does not apply. The couple appeals to the Federal Fiscal Court with the case number IX R 13/23. The Federal Fiscal Court confirms the decision of the tax court and emphasizes the strict interpretation of the law.
What does “for own residential purposes” mean?
The Income Tax Act requires that you must live in the property you have purchased for two years and one day in order to be able to sell it tax-free. Registering your place of residence is not enough.
Now you’re probably wondering what the child exception is all about. You can let your underage child live in the property. Even then, the rule applies that you can sell the property tax-free after two years and one day. This is because your child is already included in your income tax and you are obliged to provide accommodation for your child as part of your maintenance obligation.
Conclusion:
So if you are planning a real estate investment, you should pay close attention to the regulations in the Income Tax Act. Owner-occupation is the tax keyword for the sale of a property without speculation tax within ten years.
If you are still unsure, you can also book an individual initial consultation with us and we will explain what you need to bear in mind.
