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Tax-exempt sale of property – Self usage prior to the sale

If property that is held in private assets is sold within the ten year speculation period then the appreciation in value that is realised has to be taxed as gains from private disposals. This does not apply to certain cases of self usage. In a recent ruling, the Federal Fiscal Court (Bundesfinanzhof, BFH) has now examined the issue of how extensive this self usage would have to be in order to avoid triggering tax.

In cases where tax is payable, the assessment will be based on the sale price that was achieved minus the cost of acquisition or production for the property and minus allowable deductions for costs incurred. However, no tax would be triggered if a property was sold within the ten year period and if it had previously been used by the owner. To this end the property would have to have been used for your own residential purposes

  • over the entire period between its acquisition and sale, or
  • in the year in which the sale took place as well as in the two preceding years.

In the case in question, the claimant had acquired a wholly owned flat in 2006 and, initially, had lived in it himself for years. In the eight months prior to selling the flat (in December 2014) at a profit he had however rented it out, which was why the local tax office had assumed that there had not been self usage and had taxed the gain from the private disposal.

However, the BFH, in its ruling from 3.9.2019 (case reference: IX R 10/19), decided that the extent of the self usage was sufficient for a tax-free sale of the property. The statutory requirement for self usage “in the year in which the sale took place as well as in the two preceding years” would already have been deemed to be satisfied if this had been the case

  • in the year in which the sale took place and in the year before the previous year on at least one day and
  • continuously in the year preceding the year in which the sale took place.

In the opinion of the BFH, for a tax-exempt sale of a property within the ten year time limit, it is sufficient to have a consecutive period of self usage of one year and two days that has to have stretched over three calendar years however. Therefore, in the case in question, temporarily renting out the flat in the last months prior to the sale was not detrimental, from a tax point of view.

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