Furniture and fittings do not count towards capital gains from the sale of real estate. That was the verdict of the Finanzgericht (FG) Münster – the Fiscal Court of Münster – in a ruling form August 3, 2020 (Az.: 5 K 2493/18).
If a property that is not occupied by its owner is sold at a profit within a period of ten years from its acquisition, the profits are subject to capital gains tax. We at the commercial law firm MTR Rechtsanwälte note that it is only following a holding period of ten years that no capital gains tax is due on the profits. If, however, the furniture and fittings are sold along with the property, these are not subject to taxation as a private sales transaction.
In the instant case, the plaintiff had purchased and began renting out a vacation property in 2013. In 2016, he sold the property together with the furniture and fittings. The contract of sale provided for a pro rata purchase price of 45,000 euros for the latter.
When determining the amount of taxable capital gains, the tax office factored in the 45,000 euros for the furniture and fittings. Citing section 23(1) para. 1 no. 2 sentence 4 of the German Income Tax Act (Einkommensteuergesetz, EStG), it concluded that the ten-year speculation period should equally apply to these assets, as income from renting and leasing had been generated from the furniture and fittings.
The plaintiff opposed this decision, arguing that as everyday objects these were not subject to taxation.
The Finanzgericht Münster found in the plaintiff’s favor, ruling that no tax liability arose in respect of the furniture and fittings. The court noted that section 23(1) para. 1 no. 2 sentence 4 EStG merely results in an extension of the speculation period from one to ten years for certain assets; the provision does not, however, in and of itself constitute a basis for taxation. It also pointed out that everyday objects are exempt from taxation. The FG Münster then went on to state that the definition of everyday objects also encompasses home furnishings, since furniture and fittings do not usually increase in value.
A number of different tax rules and particularities need to be observed when buying or selling real estate. Lawyers with experience in the field of tax law would be happy to advise you even in the event of legal disputes with the tax authorities.
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