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Preliminary contract within the speculation period

February 4, 2010 | 25,00 EUR | answered by Dipl.BW/SB Ulrich Stiller

Hello,

I would like to have your opinion on the following matter.

I am currently a tenant of a single-family house (for about 9 years). I would like to make some structural changes that are quite expensive and that I would not make in a rental property. Therefore, I intend to purchase the house. The owner would be generally agreeable and we would also agree on a price. The problem, however, is that he cannot sell until the speculation period is over (speculative gain + repayment of all depreciation). This would be in about a year.
My question now is whether it would be legally okay if I enter into a preliminary contract with the owner for the purchase of the property at a defined price at a time after the speculation period has expired. I have heard different opinions on this. One being that even the intention to sell before the 10-year period ends is considered equivalent to a sale (at least for tax purposes). The seller would therefore have to pay tax on speculative gain as well as repay all depreciation taken to the tax authorities.
On the other hand, I have also heard that there is a decision from the Federal Fiscal Court that contradicts this.
Could you shed some light on this and give me advice on how to proceed correctly and legally? I would like the intention to purchase to be written down before I invest a lot of money in the house. If there is no obstacle to such an agreement, it would have to be done through a notary.

Thank you for your response.

Dipl.BW/SB Ulrich Stiller

Dear inquirer,

Thank you for your inquiry, which I would like to answer based on your information and in the context of your commitment within a first consultation as follows:

Depreciation increases the capital gain for your landlord if they sell within the 10-year period. They are allowed to keep the tax benefits they received from depreciation in the past.

It is possible to conclude a preliminary contract. The principles of the BH ruling from 07.08.1970 (VI R 166/67) should be followed. In this notarial contract, the landlord must make you an offer for the sale of the property. As a potential buyer, you must then accept this offer within a certain period (e.g. 1 month). If the acceptance of the offer is made after the speculation period expires, then no taxable capital gain is incurred.

A tax advisor must be consulted for the contract design, as no mistakes can be made here. Everything must be formulated very precisely.

I hope I was able to assist you within your commitment.

Best regards

Ulrich Stiller
Tax Advisor