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Influence of the partial rental and sale of the family home on inheritance tax and income tax.

January 4, 2014 | 35,00 EUR | answered by StB Patrick Färber

As part of fulfilling a bequest, a home that has been occupied by the deceased for more than 20 years was transferred to his child (legatee). The legatee renovated the home after the death of the deceased and has been using it for more than 2 years now. The home was exempt from inheritance tax according to § 13 para. 1 No. 4c ErbStG.

During the renovation, the attic was expanded, creating additional living space. This increased the living area from 145 sqm to 200 sqm. The legatee continues to live in the house but now wants to partially rent out the home (as office space). I have the following questions regarding this:

1) What impact does the partial rental of the self-occupied home have on the tax exemption according to § 13 para. 1 No. 4c ErbStG? Does it completely retroactively disappear, or is it only granted proportionally (e.g. in relation to the self-used area compared to the total living area of the house)?

2) Does renting out the newly expanded attic have a (negative) impact on the tax exemption according to § 13 para. 1 No. 4c ErbStG?

Assuming the legatee partially rents out the home and sells it before the end of the speculation period:

3) Will a profit from private sales transactions be taxed according to § 23 EStG? If so, how is it determined, considering that only renovation costs for the house and attic expansion have been incurred?

4) When does the 10-year speculation period begin, i.e. from the time of transferring the home as part of fulfilling the bequest or from the time of renting it out?

StB Patrick Färber

Dear inquirer,

Based on the information provided and considering your efforts, I can respond as follows. I assume the following:
- The inheritance occurred after 2008
- The beneficiary is a child in terms of tax class I (descendant)

Answers to questions 1 and 2:

Since 2009, it is possible to partially rent out the main residence, however the tax exemption ONLY retroactively expires in this case, as a 10-year uninterrupted actual use is required for the family home rule.

The loss of the tax exemption occurs in proportion to the rented area to the total area. This must be communicated to the tax office.

Answers to questions 3 and 4:

In the case of a gratuitous acquisition, the acquisition date according to § 23 EStG (private sale transaction) is the manufacturing-acquisition date of the predecessor, in this case the deceased. Given the 20-year previous owner occupancy as stated, § 23 EStG does not apply to the sale.

However, a sale within 10 years after the commencement of the fulfillment of the legacy (continuation of actual owner occupancy by the beneficiary) has an impact, as the tax exemption under § 13 ErbStG RETROACTIVELY COMPLETELY DISAPPEARS.

This would only be disadvantageous if the value of the legacy exceeds EUR 400,000 without the tax exemption.

I hope I could effectively answer your questions briefly.

Best regards,
P. Färber
Tax Consultant