Groundbreaking judgment by the Federal Fiscal Court, Ref.: IX R 13/22
If an heir of an inheritance community buys out their shares and subsequently sells a property from the estate, no income tax is due on that. This was decided by the Federal Fiscal Court in a judgment dated September 26, 2023 (Ref.: IX R 13/22).
If a property is purchased and resold within the ten-year speculation period, income tax is levied on the profit. The Federal Fiscal Court has now, in a groundbreaking decision, determined that the tax does not apply if an heir takes over the shares of the remaining inheritance community and resells a property belonging to the estate. It is not considered a classic private sale transaction, formerly a speculation business, explains the law firm MTR Legal Rechtsanwälte, which also advises in tax law.
Plaintiff takes over shares of the inheritance community
In the underlying case, the plaintiff had inherited 52 percent of the estate of his deceased wife. The rest was received by the two children of the deceased. The estate also included a piece of land. The man bought the children’s inheritance shares and thus became the sole owner of the property, which he subsequently sold. As no ten years had passed between the acquisition and sale of the property, the responsible tax office considered the sale a private sale transaction and taxed the profit accordingly.
BFH: No classic private sale transaction
The plaintiff successfully contested the tax assessment notice. The BFH granted the appeal. It reasoned that acquiring shares in an inheritance community is not the same as purchasing a property from the estate. A prerequisite for taxation is that the property sold must have also been acquired beforehand. This is not the case when taking over shares of an inheritance community. There is no classic private sale transaction in the sense of § 23 EStG if shares of other heirs are acquired and a property belonging to the estate is later sold, the BFH clarified.
With this judgment, the Federal Fiscal Court has deviated from its previous case law. For properties in the estate, inheritance communities should pay attention to how they wish to handle these to achieve a tax-optimized outcome.
MTR Legal Rechtsanwälte advises in tax law and in tax disputes with the tax authorities.
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