Sale of a condominium (ETW) after 5 years
August 11, 2011 | 40,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
Dear Sir or Madam,
I bought a condominium for my son, which was ready for occupancy on 1st December 2005. However, he moved out at the end of 2009 for professional reasons. I sold the condo in June 2010 without any profit. The tax office is now considering the depreciation from 2005 to 2009 as a profit from private sales transactions.
Is there an exception to reduce the profit, as the condo was purchased not for profit, but for a family member?
(I sold the condo within the speculation period, as the equipment of the condo with wooden floors, etc. was not suitable for rental.)
Thank you for a well-founded answer.
Dear Client,
Thank you for your inquiry, which I would like to answer based on the information provided and in the context of your situation for initial consultation as follows:
In answering your question, I assume that the apartment was part of your personal assets.
You sold the apartment within the detrimental 10-year period (speculation taxation).
There are 2 exceptions to speculation taxation according to § 23 (1) of the Income Tax Act:
1. The apartment was used exclusively for personal residential purposes between acquisition and sale.
or
2. The apartment was used for personal residential purposes in the year of sale and the two preceding years.
You yourself did not live in the apartment, but your son did. The free transfer of the apartment to your son does not constitute personal residential use. Only if your son is entitled to child benefit or child allowance according to § 32 (6) of the Income Tax Act, which I do not assume, could one consider it as personal residential use.
However, the tax office may not consider depreciation and thus increase any potential capital gain by the amount of depreciation for the years 2005-2009. According to § 23 (3) sentence 4 of the Income Tax Act, depreciation may only be taken into account to the extent that it was deducted in the determination of income. The wording of this provision is clear.
Since you did not generate rental income through the free transfer to your son, you could not deduct any expenses, including depreciation. Therefore, the tax office should not add depreciation to the capital gain. Note: Your son covering utility costs is not rental income.
You must lodge an objection against the income tax assessment within the one-month deadline and additionally request a suspension of the execution of the assessment. I am happy to assist with the objection and reasoning if you wish. You can contact me at StillerTaxAdviser@gmx.de.
I hope I could be of assistance.
Best regards,
Ulrich Stiller
Tax Advisor/Graduate Business Administrator
