Tax tip: Disposal of real estate upon divorce

In the case of separations, it is advisable to check in advance the tax consequences of moving out in the event of a possible sale.

In Germany, an average of around 140,000 marriages are divorced every year. As a rule, this also involves the division of assets and in particular of one's own home. If this has to be sold due to divorce, the tax consequences have to be considered. With its decision of 14 February 2023 (IX R 11/21), the Federal Fiscal Court (Bundesfinanzhof, BFH) has provided clarity in this regard, but not to the delight of taxpayers.

In the case in dispute, the plaintiff sold his half co-ownership share in the joint family home to his divorced wife. At the time of the sale, the plaintiff had already moved out of the family home; the property continued to be occupied by the divorced wife and the joint minor child. The ten-year holding period for tax-free sales had not yet been reached at the time of the sale.

In principle, the sale of a property is tax-privileged if the taxpayer used the property exclusively for his own residential purposes between acquisition and sale. In the case at hand, the father who had moved out wanted the sale to be treated tax-free. He justified this with the fact that his minor child continued to live in the house. Moreover, there was no sale, since the divorced wife threatened a forced sale and the plaintiff could not freely decide on the time of the sale. The BFH, on the other hand, declared the sale to be a taxable sale transaction.

The transfer for joint use by a child to be taken into account for income tax purposes was indeed to be attributed to the taxpayer, since independent household management by the child was not to be assumed. However, shared use by the divorced mother of the child prevents tax exemption. Shared use is equivalent to a transfer to a third party.

It is therefore advisable, especially in the case of amicable separations, to check in advance the tax consequences of moving out in the event of a possible sale and, for example, to sell the co-ownership share before moving out.