Tax liability when selling a property after a partition auction.
December 30, 2011 | 30,00 EUR | answered by Michael Herrmann
In 1979 I bought a house. My then wife was a half owner. Due to divorce, I moved out in 2004. The divorce was finalized in 2010. The property was not included or regulated in the judgment. An amicable division, sale, etc. was prevented by my ex-wife. In February 2011, I acquired the house in a partition auction for 125,000 euros. The sale proceeds were distributed accordingly by the enforcement court. Mortgage debts of the same value must be paid half by me to my ex-wife without being valuated. I lived in the house temporarily, especially in light of the repair measures. However, there was no registration of residency. I cleared out the house and made some improvements to sell it. The tax office refers to §23 and expects the so-called capital gain from the former 50% share of my ex-wife in case of a sale. I intend to sell the property in 2012 for approximately 340,000 euros. Will I have to pay taxes then and to what extent?
Dear inquirer,
First of all, thank you for your inquiry, which I would like to answer based on the information provided and in the context of your commitment within the scope of an initial consultation. The response is based on the description of the situation. Missing or incorrect information about the actual circumstances can affect the legal outcome.
The taxation of the profit from the sale of the residential property is subject to income tax as a private sale according to § 23 of the Income Tax Act. An exception exists if you have used the house for your own residential purposes in the year of sale and in the two previous years. This is obviously not the case here.
However, the taxation can only apply to the part of the house that was added by you in 2011. Otherwise, the "speculation period" has already expired. Therefore, you only have to pay tax on the proportionate profit minus the proportionate acquisition costs (50%).
Therefore, the following picture emerges for me: You had acquisition costs from the auction amounting to €62,500 plus assumed mortgages amounting to €62,500, and ancillary acquisition costs for land register fees, auction fees, etc. (at least €125,000). These acquisition costs reduce the sales proceeds of €170,000.
As a result, the taxable profit amounts to a maximum of €45,000. This profit is subject to your personal tax rate. Without knowing your other tax circumstances, an exact estimate is not possible. However, I suspect that a tax burden of 33 to 45% of this amount is realistic.
I hope that these explanations have given you a sufficient overview of the situation within the scope of your commitment and this initial consultation.
Best regards,
Michael Herrmann
Tax consultant
Diploma in Financial Management
