Ask a tax advisor on the topic of Real estate taxation

Reduction of the capital gains tax by making a subsequent payment to the buyer.

December 3, 2019 | 30,00 EUR | answered by Steuerberater Knut Christiansen

For various reasons, we had to sell our rented (and therefore not self-occupied) single-family house in August 2019. This property was acquired in March 2010, so capital gains tax is due and we will have to pay it in 2020 along with our 2019 income tax return.

However, the buyers are now demanding a compensation payment for issues that arose and were not communicated, after the purchase price has been paid and the property has been handed over. There will likely be an out-of-court settlement with the buyers.

The question now arises whether such a - retrospective - compensation payment can be deducted from the original capital gains and, more importantly, whether this is still possible even if the corresponding "defect rectification payment" is made in 2020. The negotiations are likely to drag on for a while. Any payment to the buyers would still be related to the sale proceeds.

Steuerberater Knut Christiansen

Good evening,

In principle, offsetting with the profit in 2019 would be possible. However, if the compensation is only paid in 2020, this loss would have to be carried back to 2019. Because in the context of income tax, payment is generally what matters. A loss carryback to the directly preceding year is possible. Therefore, the compensation should be paid at the latest in 2020.

I hope this answers your question, otherwise feel free to ask further questions at no cost.

Kind regards,

Knut Christiansen
Tax advisor