Selling a garden house: is there a speculation tax?

Selling a garden house can become a legal dispute – when it comes to taxation. Now a judgment has been made. You should know that.

Owners who sell their house do not have to pay tax on the profit if the house or apartment was privately inhabited. “This rule also applies to second homes or holiday homes, if they were only used by themselves,” explains Isabel Klocke from the Taxpayers’ Association.

But what applies if the property is actually permanently inhabited, but this was legally prohibited? This is now a case for the highest German tax court.

The case

In the case of the judgment, the plaintiff acquired a portion of the property for 60,000 euros on which there was a fully developed weekend house that, under building law, was not allowed to be used for permanent living. Nevertheless, the plaintiff lived in the garden house. Although there was no official postal address for the house, it had gas, sewage and telephone connections, as well as electricity.

After five years, the plaintiff sold the property for 152,000 euros. The tax office saw the difference between the purchase and sale price as a profit from private sales transactions and demanded income taxes for it. The plaintiff invoked the tax exemption for owner-occupied houses and appealed against his tax assessment.

However, to no avail: Even the Munich Finance Court did not recognize personal use, as it was not legally allowed to live in the garden (Az .: 2 K 1316/19). However, the judgment is not yet final, as the Federal Fiscal Court has approved the plaintiff’s appeal (Ref .: IX R 5/21).

How taxpayers should go about it

In similar cases, taxpayers can rely on the ongoing legal proceedings and object to their tax assessment if the tax office sets taxes on the capital gain. Then the tax must first be paid, but your own tax case remains open until a judgment is reached.

If you want to be sure that there are no taxes, it is best to sell the property after ten years. “Then the so-called speculation period has expired and the profit remains tax-free in any case”, so Klockes tip.


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