Family capital from abroad
December 1, 2010 | 30,00 EUR | answered by Michael Herrmann
In 1995, I received a capital of 300,000 euros from my parents who live abroad for investments and used it to purchase 10 apartments in a building. Since 1997, the same amount has been registered as a mortgage security plus a pension in favor of my parents. I have since given several of these apartments to the bank as collateral and received a loan of 2/3 of the purchase price. With the loan, I purchased new properties in the same building. The new properties have now been auctioned off by the banks, leaving me with only 7 properties. According to the rental index, if I calculate the 15 times the annual rent, it comes to 301,000 euros, which is the amount I sold to my parents and registered a pre-emption notice, which has not yet been completed.
Several properties have been in my possession for more than 10 years, which I bought at a high price back then, and therefore the tax office did not accept my loss. For the properties that have been in my possession for less than 10 years and which I bought cheaper, a capital gains tax is now being demanded.
Question: Can I sell the properties once and as a package to my parents for the amount of their original investment without being accused of speculation? If so, how do I justify this situation?
Dear inquirer,
First of all, thank you very much for your inquiry, which I would be happy to answer based on the information provided and in the context of your initial consultation. The response is based on the facts presented. Missing or incorrect information regarding the actual circumstances can affect the legal outcome.
If the period between acquisition and sale of real estate does not exceed 10 years, a taxable private sale is considered (§ 23 paragraph 1 no. 1 EStG), commonly referred to as a speculative transaction. This applies to sales of buildings and building parts, condominiums, undeveloped land, co-ownership interests in real estate, land lease rights, shares in closed-end real estate funds.
Forced auctions (BFH judgment of 10 December 1969, BStBl. 1970 II p. 310) and forced sales, for example due to illness, threatened expropriation, or other unavoidable events (Hessian FG from 5 K 477/06) are also considered sales transactions.
If the period between acquisition and sale exceeds 10 years, the realized capital gain is tax-free. Conversely, losses are no longer tax-deductible after 10 years. The 10-year speculation period has been in effect since 1 January 1999.
However, the Federal Constitutional Court has deemed the extension of the speculation period from 2 to 10 years in cases where property value increases were taxed, which had already occurred by 31 March 1999 and could have been tax-free under the old law, unconstitutional and void (BVerfG judgment of 7 July 2010, 2 BvL 14/02, 2 BvL 2/04, 2 BvL 13/05).
The private sale is assessed separately for each property. Selling multiple properties together does not change the assessment of the capital gain, as the purchase price minus claimed depreciation is compared to the selling price for each property. This only changes if the speculation period is waited for the remaining properties.
I hope that these explanations provide you with a sufficient overview of the situation and regret that I cannot provide a more favorable answer in this context.
Best regards,
Michael Herrmann
Dipl.-Finanzwirt (FH)
Tax advisor
