The profitable sale of a property can potentially be tax-free. However, there are strict limits for tax exemption, as shown by a Federal Fiscal Court ruling of May 24, 2022 (Ref. IX R 28/21).
Tax law stipulates a speculation period of ten years for the purchase and sale of real estate. This means: If a property is sold again with a profit within this period after purchase, taxes are due on the capital gain. However, the tax liability is waived if the property was used for personal residential purposes at the time of sale and in the two preceding years. This also applies if one’s own children lived in the property rent-free, explains the law firm MTR Rechtsanwälte, which also specializes in tax law.
For this tax exemption, the Federal Fiscal Court (BFH) set strict limits with its ruling of May 24, 2022. According to this, no tax on the capital gain is due only if the child who lived in the property was still entitled to child benefits at that time.
In the underlying case, 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. The mother sold the apartment again in 2016. At this time, the twin sons were 27 years old and unlike their brother, no longer entitled to child benefits.
After the sale of the apartment, the responsible tax office taxed the capital gain. Although tax exemption is possible when used for personal residential purposes, this also applies if the apartment is provided to children free of charge—but only if the children are still entitled to child benefits. Since the twin sons had already completed their 25th year of life in 2014, they no longer had a claim to child benefits. Thus, the self-use was no longer applicable, according to the tax office.
The BFH followed this argument. The twins, after their 25th birthday, were no longer to be considered for income tax purposes in the mother’s assessment according to § 32 EStG. Therefore, the condition for exemption no longer existed.
In tax disputes with the tax authorities, the law firm MTR Rechtsanwälte provides their clients with experienced lawyers in tax law.
