Real estate capital gains tax: what sellers pay on a property sale

The real estate capital gains tax captures income from the sale of land in private assets. The basis of assessment is the sale gain, that is the difference between the sale proceeds and the acquisition costs. On this gain a special rate of 30 percent applies. We also explain the term in the glossary.

To determine the gain the acquisition costs are deducted from the proceeds. Certain expenses, for example for the notification to the tax office or for subsequent construction and renovation costs, can change the gain under the statutory conditions. The special rate of 30 percent is decoupled from the ordinary income tax and its tariff steps.

It is different for properties that have been owned for a long time. For so-called old assets the law provides a simplified, flat-rate determination of the gain. Which case is present depends on the time of acquisition.

For taxation the law distinguishes between old assets and new assets. Old assets are properties that were acquired before 31 March 2002 and were not subject to tax on that key date. For them a flat-rate determination of the gain is possible, because the exact historical acquisition costs are often no longer ascertainable.

For old assets a flat 14 percent of the sale proceeds is treated as the gain. On this flat-rate gain the special rate of 30 percent applies. That corresponds to an effective burden of 4.2 percent of the sale proceeds. If the property was rezoned from green land into building land after a certain point in time, the flat-rate gain figure and thus the burden increase.

New assets are properties that were acquired from 31 March 2002 onwards. Here the actual gain from proceeds less acquisition costs is taxed. Whoever had high acquisition costs pays correspondingly less tax, whoever achieves a large increase in value pays correspondingly more. The flat-rate method is not open for new assets.

The most important exception is the main residence exemption. It exempts the gain from the sale of a home or owner-occupied apartment that served the seller as a main residence. The condition is that the property either served continuously as a main residence for at least two years from acquisition to sale or for at least five years continuously within the last ten years and that the main residence is given up with the sale.

The builder exemption concerns self-built structures. The gain attributable to the self-built structure remains free of tax, insofar as the structure has not served to generate income within a certain period. The share attributable to the land remains taxable. The conditions of both exemptions are to be checked precisely in the individual case.

If an exemption applies, no real estate capital gains tax falls due to that extent. As the delimitation and the proof of the conditions can be tricky, clarification before the sale is worthwhile. Which documents a seller should keep ready anyway is shown in our post on the seller obligations and the energy certificate.

Like the real estate transfer tax, the real estate capital gains tax too is in practice mostly handled through the party representative. The lawyer or notary who draws up the purchase contract and carries out the self-assessment of the real estate transfer tax regularly also calculates and remits the real estate capital gains tax. This way the tax handling of the sale is secured from one hand.

The tax is withheld from the sale proceeds and remitted to the tax office. For the seller this means that not the full purchase price is freely available, but reduced by the tax. This handling regularly runs through the escrow account. How the payment and the distribution through the escrow agent work is shown in our post on paying the purchase price via escrow.

Whoever as a seller clarifies early whether and in what amount tax falls due avoids nasty surprises at the payout. The clarification of the type of assets and possible exemptions should therefore be part of the preparation of the sale, not only a topic at the settlement.