Real Estate: What should be considered from a tax perspective when selling a rented apartment house?

The private sale of real estate has been subject to real estate income tax for 10 years now. The flat tax rate is 30%. For the calculation of the assessment basis for the tax, the finance department distinguishes between a so-called "old case" and "new case". We summarize for you the tax aspects of selling a rented apartment building.

With an apartment building as an "old case", the tax authorities mean a building whose last purchase took place before April 1, 2002, which means that on March 31, 2012 it was not subject to tax. If this is the case, then a flat rate of 86% (or 40% if a reallocation took place after December 31, 1987) can be deducted from the sales proceeds as acquisition costs. The remaining 14% (or 60%) are subject to real estate income tax of 30%, which, in simplified terms, results in a tax burden of 4.2% (or 18%) of the purchase price.

If the purchase took place after March 31, 2002, i.e. the basic 10-year speculation period had not yet expired on March 31, 2012 (so-called "new case"), the proceeds from the sale are to be reduced by the acquisition costs not yet deducted from tax (i.e. reduced by the depreciation amounts already claimed). Furthermore, production and repair costs that have not yet been deducted may be deducted.

Real estate income tax

Real estate income tax is only waived if the building being sold falls under the main residence exemption or the manufacturer exemption can be applied (however, in this case there must not have been any letting in the last 10 years before the sale). In the case of rented apartment buildings in co-ownership, i.e. those where no parification has taken place and in which the co-owner lives in an apartment himself, the selling co-owner of the apartment building cannot claim the main residence exemption - even if all the other requirements would be met - according to the opinion of the finance department . Here it can be considered in individual cases whether a parification might make sense.

If maintenance costs were voluntarily spread over 10 or 15 years during the rental period, these do not reduce the profit from the real estate transaction, but are tax deductible as subsequent income-related expenses in the income from rental and leasing in the following years.

In the area of ​​sales tax, it should be noted that the sale of the property is generally exempt from sales tax. What sounds good at first glance, however, has a catch: All input tax amounts associated with the purchase or construction of real estate must be corrected (pro rata) and paid back to the finance department. This also affects input tax amounts from expenses that must be capitalized and the costs of major repairs. The adjustment period is 10 or 20 years, depending on when the apartment building was first used as a fixed asset or when the lease was concluded.

It is possible to waive this sales tax exemption when selling real estate and voluntarily pay 20% sales tax. This saves you from any input tax adjustment that may be necessary.

Since the option to pay sales tax increases the purchaser's real estate transfer tax - the sales tax is included in the basis of assessment - it should be considered in practice to make use of this option. A possible alternative would be to have the buyer compensate any necessary input tax adjustment amount in the form of a higher purchase price.

March 14, 2023 | LBG

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