Speculation tax on German property: what selling before the deadline really costs.

When speculation tax applies to property

The legal basis is Section 23 EStG: private sale transactions involving land are taxed where the period between acquisition and sale does not exceed ten years. The period runs from notary contract to notary contract. When you paid the purchase price, when handover took place and when the land register was updated does not matter.

Two situations are often misjudged. First: no new period starts for inherited or gifted property. The successor is treated as having acquired when the previous owner bought; if your mother bought the house twelve years ago, you can sell it tax-free straight away. Second: an undeveloped plot and a share in a property, for example the half share after a separation, are also private sale transactions within the meaning of this rule.

How high the tax is: the calculation in four steps

There is no flat rate for property gains. The gain is taxed like salary or rental income at your personal rate. What matters is how the gain is determined:

1. Step 1

   Work out the gain

   Sale price minus acquisition or construction costs minus selling costs. Acquisition costs include the purchase incidentals paid back then; selling costs include the estate agent's fee, an early repayment penalty triggered by the sale and renovations carried out for the sale.

2. Step 2

   If rented out: add back the depreciation

   The acquisition costs are reduced by all depreciation (AfA) you claimed against rental income (Section 23(3) sentence 4 EStG). Every year of depreciation therefore increases the taxable gain. More on this in the next section.

3. Step 3

   Check the exemption threshold

   If the total gain from all private sales in a calendar year stays below 1,000 euros, it is tax-free. It is a threshold, not an allowance: one euro above it and the entire gain is taxable. With property sales the threshold is almost always exceeded.

4. Step 4

   Apply your personal tax rate

   The gain is added to your other income and taxed at your personal income tax rate, up to 45 per cent depending on income, plus solidarity surcharge and church tax where applicable. There is no separate flat rate for property gains.

An example in per cent of the sale price, so it transfers to any size of deal: you sell after six years, and the former purchase price including incidentals equalled 80 per cent of today's sale price. From the raw gain of 20 percentage points, 2 points of selling costs come off, leaving 18. At a personal tax rate of 40 per cent, the sale of a property not covered by the owner-occupation exception costs a good 7 per cent of the sale price in tax. What the property is worth today is clarified beforehand by a property valuation.

Depreciation recapture: why landlords pay tax on more than the increase in value

For landlords the law contains a rule many only discover at the sale: acquisition costs are reduced by the depreciation claimed against rental income (Section 23(3) sentence 4 EStG). Every year of depreciation from the past is taxed again if you sell within the period.

In the example above: after six years of letting with two per cent annual building depreciation, roughly 8 additional percentage points have accumulated. The taxable gain rises from 18 to around 26 percentage points, the tax at a 40 per cent rate from a good 7 to around 10 per cent of the sale price. The depreciation was an advantage during the rental years; on a sale before the deadline the tax office takes it back. After the ten years it remains permanently tax-free. That is exactly why the deadline is worth real money to investors.

These exceptions make the sale tax-free

The most important exception is owner occupation. The sale is tax-free if you lived in the property yourself between purchase and sale, or if you used it as your own home in the year of sale and the two preceding years. For the second variant, partial calendar years are enough: moving in in December 2024 and selling in January 2026 works arithmetically, because 2024, 2025 and 2026 are all touched. Letting a child live there free of charge also counts as owner occupation as long as child benefit or the child allowance is granted for that child. Letting other relatives live there, for example your own mother, does not count.

How hard the line is drawn is shown by a ruling of the Federal Fiscal Court: a husband moved out after the separation, wife and child stayed in the family home, and years later he sold her his half share, partly under the threat of a forced auction. The BFH (ruling of 14 February 2023, IX R 11/21) taxed the gain: whoever has moved out no longer occupies the property, and economic pressure changes nothing. If you are separating and the deadline has not yet passed, have the tax side checked before the divorce settlement.

Also tax-free: the sale after the ten years have expired, and an annual gain from private sales below the 1,000-euro threshold. The threshold is not an allowance: one euro above it makes the entire gain taxable. For property it only matters with very small share sales.

The double bill: tax and early repayment penalty together

This is the part most guides leave out. Whoever sells within the period almost always still has a running mortgage, and the bank usually charges an early repayment penalty for the early repayment. Tax and penalty hit the same sale but are assessed separately, and both depend on time: the tax disappears when the ten-year period expires, the penalty shrinks with every year of remaining fixed interest and disappears entirely ten years after the loan was fully paid out.

Bringing the example together: a rented flat, sold six years after purchase, outstanding loan of 60 per cent of the sale price, five years of fixed interest left, a rate gap of one percentage point. The tax costs around 10 per cent of the sale price; the early repayment penalty, from our matrix, around 3.5 per cent of the outstanding balance, so roughly 2 per cent of the sale price. Together, around 12 of the 20 percentage points of value growth go to the tax office and the bank. More than half the gain. One small relief: the penalty counts as a selling cost and reduces the taxable gain. ME Finance's own calculation with rounded assumptions; your figures will differ.

The same calculation also decides the alternative of letting instead of selling: whoever holds the property until the deadline and sells afterwards saves both items, but needs financing that carries those years. Whether your current fixed-rate period, a bridging loan or a refinancing does that is something we calculate with you.

Sell or wait: the decision at a glance

Four situations cover most cases. The table does not replace advice, but shows which questions to settle first:

The three-object rule: when selling becomes a trade

Selling more than three properties within five years risks classification as commercial property trading. Then the rules in this article no longer apply: the ten-year period offers no protection, gains are additionally subject to trade tax, and the owner-occupation exception does not help with the traded objects either. The rule is an indicator, not an automatism, and counting and exceptions are case-by-case questions. Whoever plans several sales, for example from an inherited portfolio, should fix the order with a tax adviser in advance.

What to take away from this article

• The ten-year period runs from notary contract to notary contract. With inheritances and gifts, the previous owner's period keeps running.
• Owner occupation in the year of sale and the two preceding years makes the sale tax-free; partial years count. Whoever moves out after a separation loses the exception.
• The gain is taxed at your personal rate. For landlords, depreciation recapture raises the tax in our example from a good 7 to around 10 per cent of the sale price.
• Tax and early repayment penalty belong in one joint calculation. In the example, both together cost more than half the value growth.
• More than three sales in five years can count as commercial property trading.

ME Finance does not give tax advice. We calculate the financing side: what repaying your loan costs, whether a bridging loan carries the wait until the deadline, and how the next purchase is financed. We take your key data via the non-binding enquiry.