2023-03-08 | Taxes and transaction costs when buying and selling real estate in Germany
Taxes and transaction costs when buying and selling real estate in Germany
Germany is a popular destination for real estate investment, thanks to its stable economy, attractive property prices, and favourable legal system. However, like in any other country, buying and selling real estate in Germany is subject to certain taxes and fees. In this article, we will explore the taxes involved in buying and selling real estate in Germany.
Buying and selling real estate in Germany is subject to various taxes and fees, including
- property transfer tax
- real estate agent commission
- capital gains tax
- land register fee
It is important to factor these costs into your budget and seek professional advice to ensure compliance with German tax laws. By understanding the taxes involved, you can make informed decisions and avoid unexpected costs when buying or selling a property in Germany.
Property transfer tax (Grunderwerbsteuer)
When you buy a property in Germany, you are required to pay a one-time property transfer tax, also known as Grunderwerbsteuer. This tax is calculated based on the purchase price of the property and varies from state to state. The tax rate ranges from 3.5% to 6.5% of the purchase price, with the highest rate being in the state of North Rhine-Westphalia. In most cases, the buyer is responsible for paying this tax.
It is worth noting that the property transfer tax is non-negotiable and cannot be financed through a mortgage. Therefore, it is important to factor this cost into your budget when purchasing a property in Germany.
Real estate agent commission (Maklerprovision)
When buying or selling a property in Germany, you will most likely use the services of a real estate agent. In Germany, the real estate agent commission is usually paid by the buyer and seller, with each party paying 50% of the total commission. The commission rate is typically around 6% plus VAT of the purchase price, depending on the location and the type of property.
However, as of December 23, 2020, the German government has introduced a new law called the "Broker Relief Act" (Maklerentlastungsgesetz), which requires the real estate agent commission to be paid by the party that commissioned the agent, meaning the seller. This law aims to relieve the financial burden on buyers, who were previously responsible for paying the entire commission. As a result, buyers and sellers are now paying each 3,57% commission to the agent.
Capital gains tax (Abgeltungssteuer)
If you sell a property in Germany, you may be subject to capital gains tax, also known as Abgeltungssteuer. The tax rate is 25% plus solidarity surcharge and church tax, if applicable. However, if you have owned the property for more than ten years, you are exempt from capital gains tax.
It is important to note that if you sell a property that has been your primary residence for at least two years, you may be eligible for a tax exemption of up to €250,000 if you are single or up to €500,000 if you are married or in a civil partnership. This exemption only applies if you have not sold another property within the last couple of years.
Land register fee (Grundbuchgebühr)
When you buy or sell a property in Germany, the transaction must be registered in the land register, also known as Grundbuch. The land register fee is calculated based on the purchase price of the property and varies from state to state. The fee ranges from 0.5% to 1.5% of the purchase price.
Private individuals, investors or capital investors:
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Do you can save taxes in Germany
by buying a property?
When it comes to taxes in Germany, real estate ownership can be an effective way to save money. In this blog post, we will discuss the different ways in which buying a real estate can help you save taxes in Germany. By taking advantage of property tax deductions, mortgage interest deductions, depreciation, and capital gains tax exemptions, you can reduce your tax burden and increase your wealth. However, before buying a property, it is important to consult with a tax professional to determine the best tax strategy for your specific situation.
Property Tax (Grundsteuer)
One of the main benefits of owning a property in Germany is that you can save money on property tax.
Property tax is a tax on the value of real estate and is paid annually. The tax rate varies depending on the location and the value of the property, but it is typically between 0.2% and 0.5% of the property's assessed value. By owning a property, you can deduct property tax from your income tax, reducing your tax burden. In addition, if you use your property as your primary residence, you can qualify for a tax exemption on the first €250,000 of the property's assessed value.
Mortgage Interest (Hypothekenzins)
Another way in which owning a property in Germany can save you taxes is through mortgage interest deductions.
If you take out a mortgage to finance your property purchase, you can deduct the interest paid on your mortgage from your income tax. The amount of mortgage interest you can deduct depends on the type of mortgage and the interest rate. In general, you can deduct up to 30% of your annual income from mortgage interest payments.
Depreciation is another way in which owning a property in Germany can save you taxes.
Depreciation is a tax deduction that allows you to write off the cost of your property over a period of several years. The amount of depreciation you can claim depends on the age and condition of your property. Typically, you can depreciate your property over a period of 50 years, which means that you can deduct 2% of the value of your property from your income tax each year. Since 2023 there is the opportunity to deduct 3% instead of 2% if you buy a new build property.
Capital Gains Tax (Kapitalertragssteuer)
Capital gains tax is a tax on the profit made from selling an asset, including real estate. In Germany, the capital gains tax rate is 25% of the profit made from the sale of the property. However, if you own a property for more than 10 years, you are exempt from capital gains tax on the sale of the property. This means that if you buy a property and hold onto it for more than 10 years, you can sell it without paying any capital gains tax.
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