Tax aspects of selling/renting an inherited property
November 1, 2012 | 50,00 EUR | answered by Dr. Yanqiong Bolik
Dear Sir or Madam,
This year I have inherited a property in need of renovation. This property was purchased by the deceased (my uncle) in 1979 and used by himself. Please explain the tax aspects to me for the following scenarios.
a) Sale of the property in its unrenovated state:
What is the basis for calculating inheritance tax?
(Is it based on the selling price or is the property valued independently by the tax office?)
b) Renovate first, then sell (renovation costs include new flooring, 2 new bathrooms, resealing parquet flooring, plastering, new radiator, wallpapering, painting = approximately 25% of the estimated value of the property)
What is the basis for calculating inheritance tax?
- Valuation by the tax office? (if yes, does a professional inventory need to be conducted before renovation begins?
- Selling price minus renovation costs?
c) Renovate first, then rent out
1) What is the basis for calculating inheritance tax?
- Estimated value by the tax office?
- Survey before renovation?
2) Can the renovation costs (as mentioned above) be deducted directly over 1-5 years before renting out, or only as depreciation?
3) With the property, cash assets were also inherited. Can I still take out a tax-deductible loan for the payment of inheritance tax and for property renovation? Does this loan have to be secured against the property or can another self-used property serve as security?
4) When could the property be sold again without tax disadvantages?
Thank you in advance and kind regards
Dear Inquirer,
Thank you for your inquiry, which I will gladly answer taking into consideration your effort and the rules of this platform.
Please note that my explanation is based on the situation presented, and that adding, omitting, changing information, or the ambiguity of the information can change the tax result.
I assume that you did not pay compensation for the apartment, so you inherited it free of charge. Please inform me if this assumption is incorrect. The tax consequences could change.
a) Sale of the apartment in unsanitary condition: What is the basis for calculating inheritance tax? (the selling price or will the apartment be independently assessed by the tax office?)
In this case, it concerns condominium ownership, which is generally evaluated for inheritance tax purposes using the comparative value method. When applying the comparative value method, it is primarily necessary to refer to the comparative prices communicated by the expert committees for sufficiently similar properties. These comparative prices are generally determined from the average of the purchase prices of similar properties. The expert committee derives the purchase prices from its purchase price collection. If the expert committee does not provide suitable comparative prices, the tax authorities can resort to the selling price.
b) Renovate first, then sell (renovation costs including new flooring, 2 new bathrooms, sealing new parquet, plastering, new radiator, wallpapering, painting = approx. 25% of estimated apartment value) What is the basis for calculating inheritance tax? - Estimate by the tax office? (if yes, must a surveyor's inventory be made before renovation begins? - Sale proceeds minus renovation costs?
The evaluation is carried out using the comparative value method, although with a comparative value for apartments in the inherited condition. While a surveyor's inventory is not strictly necessary, it is nonetheless harmless. This provides you with evidence against the tax office.
c) Renovate first, then rent out
1)What is the basis for calculating inheritance tax? - Estimated value by the tax office? - Appraisal before renovation?
In my opinion, despite the intention to rent out, you initially inherited a condominium. Only after the renovation is the apartment brought into a rentable condition. Therefore, the apartment should be valued as a condominium, consequently based on the comparative value before renovation. If no comparative value is available, the property can be evaluated using the asset value method.
2)Can the renovation costs (see above) be deducted directly over 1-5 years before renting out or only as depreciation?
To deduct the renovation costs as operating expenses in rental and lease income, you must credibly demonstrate to the tax office your intention to generate income. You can then deduct the costs for the above-mentioned measures as operating expenses over 1-5 years. Please note that if you carry out additional measures (e.g. sanitary and electrical installations as well as windows), the tax consequences could change.
3)With the apartment, cash assets were also inherited. Can I still take out a tax-deductible loan for paying inheritance tax and for renovating the apartment? Does this loan have to be taken out on the apartment or can another self-used property serve as security?
Despite the inherited cash assets, you can take out a loan for renovating the apartment intended for rental. The purpose of the expenses is decisive for deducting operating expenses. That is, the loan must serve to acquire, secure, and maintain income from renting out. In principle, it is irrelevant what the loan is secured with.
4)When could the apartment be sold again without tax disadvantages?
Since you acquired the apartment free of charge due to inheritance in 1979, the acquisition date is considered 1979. Therefore, the 10-year period according to §23 Income Tax Act has already expired. As long as the apartment is held in your private assets, the disposal result is not to be considered for income tax purposes.
I hope I could be of assistance to you.
If there is still any ambiguity, please feel free to use the follow-up function.
Best regards,
Dr. Yanqiong Bolik
Tax consultant
Bildstöckle 6, 70567 Stuttgart
Tel: +49 (0)711 / 2132 1815
Email: info@zdbz.de
www.steuerberatung.zdbz.de
