Private sale of land and real estate by inheritance
February 22, 2014 | 30,00 EUR | answered by Ekrem Uyulur
The situation is as follows:
In 1997, my father received a residential house and two agricultural plots from my grandmother as a gift (subject to reservation of usufruct). My grandmother passed away in August 2003.
My father then passed away in July 2010, after living in the residential house himself for over two years. As heirs, my mother (who was separated from him) inherited 1/2, my paternal half-sister and I each inherited 1/4.
In April 2011, my mother also passed away, so her share transferred to me half, and the other half to my maternal half-brother.
We sold the plots in November 2012 and the residential house in June 2013 (plots for a total of 45,000€ / 50,000€ for the dilapidated house). We had to provide about 10,000€ for the sale to pay off outstanding debts to creditors, so we could clear the entries in the land register (I don't know if these expenses are relevant).
I have now been asked by the tax office to submit a tax return. I want to make sure I don't make any mistakes.
I have already informed myself about the legal situation regarding §23 of the Income Tax Act (Private Sales). As far as I understand, there was no income tax liability before my mother's death for a potential sale, because my father inherited the house more than 10 years ago (without charge) and had lived in the property for more than two years.
But how does it work now with my mother's death? She did not live there herself, nor did she own the property for more than 10 years.
Questions:
1. Do I now have to pay tax on the share she inherited to me (referring to the proceeds from the above sales)? Or does the present inheritance also include the gratuitous acquisition and assumption of the legal position of the previous predecessor (my father)?
2. If I don't have to pay taxes, do I still need to explain the situation to the tax office, or can I simply not provide any information on the sale in the tax return?
I hope I have formulated the question clearly. If there is any confusion, please let me know.
Dear questioner,
In the context of the initial consultation, I will answer your question as follows:
Regarding point 1): In order for a sale of real estate from personal assets to be subject to tax, no more than 10 years must have passed between acquisition and sale (the date of the notarial contracts is important). In the case of an acquisition without consideration (in your case, inheritance), the acquisition date of the predecessor is considered the relevant acquisition date.
Regarding your father's share of the inheritance, you have correctly noted that 10 years have already passed, as your father was the predecessor and acquired the house in 1997. Whether his acquisition was with consideration or without consideration does not change the result in this case.
However, your mother's share of the inheritance is also tax-free. Your mother also inherited shares of real estate from your father. Therefore, the acquisition date for your mother is the same as that of the predecessor, namely your father (1997). The subsequent transfer to you through inheritance does not change this date. The same acquisition date applies to you as well, which was the same as for your mother, namely 1997.
Please note that the above explanations only apply if the properties or buildings were in personal assets; also in the personal assets of the deceased. A commercial, professional, or agricultural use would have a different tax effect.
Solely renting or leasing the agricultural land to a third party is not harmful. However, the personal agricultural use by the deceased or heirs is treated differently for tax purposes. If this is the case, the situation would need to be separately examined.
Regarding point 2): Usually, the tax office receives a notification of sale from the local court that maintains the land register. If you do not declare it in your tax return, you will likely receive an inquiry from the tax office. Therefore, I recommend declaring it from the outset. You would need to indicate (preferably on a separate sheet) the share of your sales proceeds, minus the proportional acquisition costs of the deceased and any proportional selling costs that may have been incurred. Repaying debts cannot be claimed as selling costs; however, prepayment penalties or compensations from these debts may be claimed.
It is also important to indicate in your income tax return when the properties were acquired by the predecessors and when the sale took place. Due to the exceeding of the "speculation period," a sales gain of EUR 0.00 is calculated. This amount is entered in Annex SO. The acquisition dates may need to be proven if necessary.
I hope this answer has helped you.
I am available for any further questions you may have.
Best regards,
Tax advisor
Ekrem Uyulur
