Ask a lawyer on the topic of International law

Taxation of a real estate sale in a European country

April 1, 2015 | 50,00 EUR | answered by Jan Wilking

Hello!
We bought a vacation home in France in August 2006. At that time, we were living in Paris on rent. For a few years now, we have been living back in Germany, where I also pay my income tax.
Since we are using our vacation home in France less and less, we would like to sell it. How will this be treated tax-wise in Germany? We are not sure if we will make a profit.
Thank you for your feedback.

Jan Wilking

Dear inquirer,

I am happy to answer your inquiry taking into account your description of the situation and your efforts as follows:

If you are not trading real estate commercially, according to German law, the only applicable taxation would likely be as a private sale (other income according to § 22 No.2 Income Tax Act). § 23 Income Tax Act determines that this also includes sales of real estate where the period between acquisition and sale does not exceed ten years.

However, § 23 paragraph 1 No.1 last sentence states: "Excluded are assets that were used exclusively for personal residential purposes between acquisition or completion and sale, or in the year of sale and the two preceding years." This exception usually applies to a vacation home not intended for rental, if it is available for personal use at all times. Therefore, if you do not rent out the vacation home and can use it for residential purposes at any time, the exemption from tax liability under § 22, 23 Income Tax Act is likely to be affirmed.

However, it cannot be ruled out that taxes may be incurred in France when selling real estate. This cannot be conclusively determined within the scope of this initial consultation, especially considering potential double taxation agreements. Therefore, you should have a specific examination conducted by a tax advisor before selling.

I hope to have provided you with an initial helpful orientation. If you have any further questions, please use the free follow-up function.

Best regards,
Jan Wilking, Attorney