The profitable sale of a property can be tax-free under certain conditions. However, strict limits apply for such tax exemption, as demonstrated by a ruling of the Federal Fiscal Court on May 24, 2022 (Case No. IX R 28/21).
Tax law stipulates a speculation period of ten years for buying and selling properties. This means if a property is resold at a profit within this period, taxes are levied on the capital gains. However, the tax obligation ceases if, at the time of sale and in the two preceding years, the property was used for the owner’s own residential purposes. This also applies if the owner’s children lived in the property free of charge, explains the law firm MTR Rechtsanwälte, which also specializes in tax law.
For this tax exemption, the Federal Fiscal Court (BFH) has set strict limits with its judgment of May 24, 2022. Accordingly, no tax is due on the capital gains only if the child who lived in the property was still eligible for child benefits at that time.
In the case at hand, a mother purchased a condominium at her children’s place of study in 2010. Her twin sons, born in 1989, lived in the apartment during their studies. The apartment was only sporadically used by the third son. In 2016, the mother sold the apartment again. At that time, the twin sons were 27 years old and, unlike their brother, were no longer eligible for child benefits.
After the sale of the apartment, the responsible tax office taxed the capital gains. The tax exemption is possible for use as self-occupied dwelling, even if the apartment is provided to children free of charge — however, only if the children are still eligible for child benefits. As the twin sons had already completed their 25th year of life by 2014, they were no longer entitled to child benefits. Thus, self-usage had also ceased, according to the tax office.
The BFH followed this reasoning. The twins were no longer to be considered income tax-relevant in the mother’s assessment after their 25th birthday according to § 32 EStG. Thus, the exemption requirement was also no longer applicable.
In tax disputes with the tax authorities, the law firm MTR Rechtsanwälte provides its clients with experienced tax law attorneys.
