“Speculation tax” – home office?

Private land, buildings, apartments, etc.,

that are built or acquired and subsequently sold within 10 years are generally subject to a taxation rule: Profits arising in the process are subject to income tax as a private sale transaction; corresponding losses may be offset against similar profits in the same year or against profits in the previous year or in subsequent years.

One exception

regularly applies to properties that were used for the owner’s own residential purposes for a certain period of time prior to the sale.

Contrary to the view of the tax authorities, the Cologne Fiscal Court has now ruled that the use of a home office in an otherwise residential building – and thus tax-exempt in this respect – is not subject to tax.
– apartment does not trigger a pro rata “speculation tax”.

According to the court

the home office does not constitute an independent asset because it is integrated into the private living area and cannot be sold independently of the other parts of the apartment. Accordingly, in the case in dispute, the profit from the sale of a condominium including a professionally used study contained therein remained fully tax-exempt.

As the ruling has been appealed, the decision of the Federal Fiscal Court on this issue remains to be seen.

(Further comments & information on this can be found in our information letter 08/2018 under item 2.)