Real estate transfer tax – cost factor – land purchases – tax rates

Previously, the following applied to land purchases

a uniform real estate transfer tax rate of 3.5% of the purchase price (or the consideration). Since 2007, the individual federal states have been able to determine the level of the tax rate themselves. In some cases, this has led to a drastic increase in tax rates in recent years (see the list in our Infobrief, 07/2018).

Against the background that the real estate transfer tax has become a significant cost factor, the following should be noted:

• Real estate transfer tax is levied on the acquisition of a plot of land , including its essential components; this includes items permanently attached to the land, i.e. in particular a building. Movable items (so-called accessories) that serve the economic purpose of the object of acquisition – such as the inventory – do not form part of the real property and therefore do not form part of the basis of assessment for the real estate transfer tax.
  This includes, for example, furnishings that were also sold, such as furniture, kitchen equipment or a removable awning. If such inventory is listed individually in the purchase agreement and a separate price is set for it, this value can be deducted from the total consideration subject to real estate transfer tax. The value of the inventory can be set at a reasonable amount; some tax authorities regularly recognize a realistically estimated amount if it does not exceed 15% of the total purchase price.

• If, when acquiring a condominium in a residential property complex, a share in the maintenance reserve is also taken over, the purchase price attributable and reported for this could previously also be deducted from the basis of assessment for real estate transfer tax. However, after the Cologne Fiscal Court rejected this practice, the Federal Fiscal Court will soon have to take a position on this. Until this question is finally clarified, a corresponding item should, if necessary, continue to be shown separately in the real estate purchase agreement as a precautionary measure; if the tax office includes the reserve for the purposes of real estate transfer tax, it should be examined whether the assessment can be kept open until the decision of the Federal Fiscal Court.

(Further comments & information on this can be found in our information letter 07/2018 under the item 7.)