Anyone who sells an apartment or house may be required to pay speculation tax after the sale. This is the term used for the tax that may apply when a profit is made from the sale of real estate. However, speculation tax is not charged in every case.
A property sale is exempt from speculation tax in the following cases:
- If the property was continuously occupied by the owner.
- If the property was occupied by the owner at least during the calendar year in which it was sold and the two preceding calendar years. In this case, the property may previously have been rented out.
- If the property had been owned for at least ten years.
- If the profit from property sales within one year is less than €600.
It Is the Profit, Not the Sale Price, That Matters
If none of these exemptions apply, for example if the property was rented out and sold less than ten years after it was acquired, the profit from the sale is subject to tax. It is therefore important to note that tax is not charged on the entire sale price, but on the sale price minus the acquisition costs and the costs incurred when selling the property.
The amount deducted from the sale price therefore includes the original purchase price paid for the property, or the construction costs if the property was built by the owner. Additional acquisition costs incurred at the time of purchase can also be deducted, including real estate transfer tax, notary and land registry fees and, where applicable, estate agent commission.
Costs may also arise when selling the property, for example for advertising the property, travel expenses or estate agent fees. These costs are also deducted from the sale price when calculating the speculation tax. The same applies to modernisation costs, provided that they amount to more than 15 percent of the purchase price and were incurred at least three years after the property was purchased.
Once all these costs have been deducted from the sale price, the resulting amount is the profit from the sale. Provided that this profit amounts to at least €600, it is subject to tax.
The Tax Rate Is Based on the Individual Income Tax Rate
Unlike capital gains tax, which applies to transactions such as the sale of shares and is charged at a fixed rate, there is no standard percentage rate for taxing profits from the sale of real estate. Instead, the applicable tax rate is based on the seller’s individual income tax rate.
The profit generated from the property sale is therefore declared in the seller’s income tax return. The applicable tax rate is then calculated on the basis of the seller’s total taxable income.
