The sale of a home is exempt from income tax at any time if it is used exclusively for the owner's own residential purposes between purchase and sale. How long it was lived in is irrelevant. This also applies to a holiday home or a home at the place of work in the case of dual household management. The tax exemption covers both the building and the land, even if the latter is very large.
Tax exemption on the sale of part of a property?
The Federal Fiscal Court has dealt with the question of whether the sale of part of the land of a property used exclusively for own residential purposes falls under the tax exemption (judgement of 26 September 2023, AZ IX R 14/22). In the case in question, the couple had purchased a property with a plot of 3863 square metres in 2014 and moved into the house in 2015 after renovating it. The couple later divided the property and sold an area of 1,000 square metres in 2019 with a profit of 66,000 euros.
The couple assumed that the tax exemption for the sale of the entire house would only apply to part of the property and therefore did not declare any taxable income.
Jürgen Lindauer
Director, Tax
KPMG AG Wirtschaftsprüfungsgesellschaft
Tax authorities and BFH consider a "new" property separately in the event of division
However, the tax authorities deemed this to be a taxable transaction and taxed the capital gain as a private sales transaction. However, the appeal filed by the couple and the appeal to the Federal Fiscal Court were unsuccessful.
In particular, in the opinion of the Federal Fiscal Court, the previous use of the undivided property areas should no longer be relevant. With the division of the land area, two new plots of land were created, the "use for own residential purposes" of which should be considered separately. As there was no residential use on the undeveloped garden plot and no more than ten years had passed since the purchase, from which sales are tax-free, the profit was taxable.
