Calculation method for proportional speculative profit from property sales
February 14, 2014 | 50,00 EUR | answered by Ekrem Uyulur
Is it permissible under §23 EStG to calculate a gain (see below) proportionally? How is this calculated?
We would like to sell an apartment, which at the time of sale will no longer be subject to speculation tax.
However, an additional special use right was entered in the land register in 2011, which we acquired in 2011.
Question 1) Does a special use right on common property as a right equivalent to property under §23 EstG also fall under this?
If this special use right is also subject to §23 EStG, and since not yet ten years have passed, but we still want to sell the apartment with the special use right at the end of the year after over 10 years, the following question arises regarding the calculation of the tax burden:
Suppose apartment A cost €10,000 in 2004 and we have owned it for 125 months at the time of sale. Suppose special use right B cost €2,000 and we have owned it for 25 months at the time of sale.
Suppose the sales proceeds A + B amount to €17,000 (= gain of €5,000).
From a tax perspective, would it be correct to calculate the increase in value proportionately and monthly based on the different investment amounts and durations and to reflect this accordingly in the sales contract?
For example, here 10k x 125 months = 1250 to 2k x 25 months = 50,
thus in the ratio of 1250 to 50
thus 96.15% (share of A in increase) to 3.85% (share of B in increase),
thus sales price of A 14807 to sales price of B 2193?
Questions:
2a) Would the gain to be taxed as a private disposal gain then be 3.85% of €5,000, so €193? Is this calculation correct from a tax perspective?
2b) If the calculation is not correct from a tax perspective, please provide the correct calculation.
Best regards
Dear questioner,
In the context of the initial consultation and under the current legal conditions and regulations, I would like to address your question as follows:
Since I could not determine from your question how the apartment or the special use right was or is being used, I will try to cover all possible scenarios. If none of them apply to you, please let me know.
I. If you have used the apartment and the special use right for your own residential purposes or have provided it free of charge to your children (provided that you are entitled to child benefit or child allowance), the sale is completely tax-free regardless of the acquisition and sale date. If there was no personal use/provision to children throughout the entire ownership period, please provide a brief response here.
II. If Section I does not apply, the capital gain on the share of the property that pertains to the condominium is still tax-free, as this share was acquired more than 10 years ago. You have already correctly outlined this. Please note that for the calculation of the 10-year period, the dates from the notarial purchase and sale contracts are relevant, not the timing of the property transfers.
Question 1: The special use right is a right subject to the provisions of civil law on properties. Therefore, this sale is subject to taxation under § 23 (1) sentence 1 no. 1 sentence 1 EStG (provided that it is private property; if uncertain, please let me know).
Question 2a and b: In principle, individually assignable income and expenses are directly attributable to the individual properties and rights. If income and expenses cannot be individually assigned, these amounts should be allocated appropriately.
If the purchase prices for the condominium and the special use right are determined separately, they are relevant for calculating the selling prices. The separate acquisition costs should be deducted accordingly.
Example 1: EUR 14,000.00 is agreed upon for the condominium and EUR 3,000.00 for the special use right. Therefore, EUR 3,000.00 is the selling price for the special use right. According to your information, the acquisition costs amount to EUR 2,000.00. This results in a capital gain of EUR 1,000.00 for the special use right. If you have claimed depreciation amounts for the special use right, the sum of the claimed depreciation amounts (including previous years) will increase the capital gain. Any expenses related to the sale of the special use right will reduce the capital gain.
If the purchase prices were not separately agreed upon and specified in the notarial contract, the total purchase price should be allocated appropriately between the condominium and the special use right. A fair allocation means dividing according to the market value. I recommend conducting research on purchase prices of comparable condominiums and special use rights and documenting the results and evidence as proof. It is possible that the tax office may appoint its own expert to evaluate the condominium and the special use right and possibly make a different allocation (favorable or unfavorable).
Example 2: The market value of a comparable condominium is EUR 20,000.00 and a comparable special use right is EUR 5,000.00. This means the ratio of the condominium to the special use right is 80% to 20%. This ratio should also be applied to the agreed total purchase price of EUR 17,000.00 (according to your information). Therefore, the selling price for the special use right (EUR 17,000.00 x 20% =) EUR 3,400.00. Subtracting the acquisition costs of EUR 2,000.00 would result in a capital gain of EUR 1,400.00. The same applies to depreciation amounts and expenses related to the sale as in Example 1.
Conclusion: The tax office regularly does not recognize a distribution of sales proceeds that deviates from the one in Example 2 as appropriate. Even if your allocation may potentially lead to a similar result as Example 2, I recommend following the allocation in Example 2.
The situation may need to be assessed differently if the special use right was used for business/professional purposes or if other properties and property-like rights have been sold in the last 10 years. In these cases, I also request a brief response.
I hope this response has been helpful to you.
Best regards,
Tax consultant
Ekrem Uyulur
