Germany: Recent court decisions relating to taxation of real estate
Building contract modifications increase real estate transfer tax; special depreciation allowance for new residential construction denied
The Federal Fiscal Court (BFH) recently held (Ref. II R 15/22 and Ref. II R 18/22, both October 30, 2024) that modifications to a contract for the purchase of undeveloped land and construction of a building on such land (e.g., special requests for higher-quality finishes) must be included in the value of the property for real estate transfer tax purposes and must be reported to the tax office within two weeks of becoming known.
Note that this situation is distinguishable from a scenario in which the subsequent building alterations are agreed directly with a tradesman without involving the seller of the property. In that case, there is no longer any connection with the purchase of the property and therefore no additional real estate transfer tax is payable.
Read an April 2025 report prepared by the KPMG member firm in Germany
The Cologne Fiscal Court recently held (case no. 1 K 2206/21, September 12, 2024) that the special depreciation allowance for new residential construction under Section 7b of the German Income Tax Act did not apply to a taxpayer that demolished a residential building built in 1966 and replaced it with a new building on the same site.
The court concluded that the newly built single-family home did not constitute a new dwelling, as it merely replaced an old one with a new one, and that the existing residential unit was neither technically nor economically “used up” at the time of the demolition such that a new building was absolutely necessary.
The taxpayer has appealed the decision to the Federal Fiscal Court (case no. IX R 24/24).
Read an April 2025 report prepared by the KPMG member firm in Germany