Tax effects in the case of a sale
1. Tax on Real Estate Gains and Speculations Gains (Real Estate Gains Tax)
Gains from the sale of privately-held real estate have been subject to taxation since April 1, 2012, regardless of the time held. With regard to real estate which was sold after March 31, 2012 there is a distinction between those properties that were previously purchased on/after April 1, 2002 (or April 1, 1997) and those purchased before that date (“old cases”).
30% tax on the real estate gains
Those properties that were acquired as of April 1, 2002 (or April 1, 1997 if production costs were partly appreciated over a shorter period) are normally subject to a flat 30% real estate gains tax rate, based on the difference between purchase costs and sales proceeds. Renovation costs and production costs after the purchase are deductible to the extent they cannot be expensed. However, added is any depreciation on purchasing and production costs, and the special depreciation which was deducted in the process of calculating special income from letting and leasing (see details item 3 below), as well as partial deductibles for renovation expenses which have not yet been accounted for. Sales made on/before December 31, 2015 are subject to a tax rate of 25%. The previously valid 2% compensation for inflation per year can no longer be set off against the taxable profit (as of January 1, 2016).
NOTE: It is primarily in the case of rented properties that the real estate gains can normally only be determined in cooperation between the tax adviser and the real estate broker. The declaration and payment of the real estate gains tax has to be made by the drafter of the sales agreement, no later than on the 15th day of the second month following the actual payment of the purchase price.
”Old cases“: 4.2 % or 18 % tax on the total purchase price.
In the event the preceding purchase was before April 1, 2002 (or in the event of partial deductibles made in accordance with Sec. 28 (3) Income Tax Act of April 1, 1997) the actual sales proceeds will be taxed at a flat rate. In view of the legally imposed assumption of a 14% gain from the sale of the property, the resulting tax rates are 4.2% on the sales proceeds, or 18% on the sales proceeds, if there was a re-designation or rezoning after Jan 1, 1988.
It is possible in any case to request a calculation of the speculative gain and to have it taxed at a rate of 30%, or using the applicable income tax rate. Pursuant to Sec. 20(2) EStG also ancillary transaction costs are deductible in that case.
2. Exemptions from the Real Estate Gains Tax
A) For primary residences
There is no real estate gains tax if a property was used as a primary residence for at least two years without interruption, from the moment of acquisition to its sale, or if it was used as a primary residence for a period of at least five years during the last ten years without interruption.
B) For self-made buildings
The exemption also applies to self-made buildings (seller is also principal / builder) if these buildings were not used to generate rental income during a period of 10 years prior to their sale.
C) Further exemptions
Further exemptions are provided for exchanges in connection with the reallocation / consolidation of farmland and similar transactions, as well as the application of certain taxes to the speculations tax, such as land acquisition taxes, taxes on the income of foundations, and inheritance / gift taxes during a period of three years prior to the sales transaction.
Self-assessment of the tax and filing of the tax return must be made by the counsel online (via finanz-online) no later than on the 15th of the second month following the date the agreement was concluded.
3. Calculation of partial deductibles and the speculative gain
When calculating the speculative gain of “new cases”, any partially accelerated depreciation of production costs and the pro-rated depreciation of renovation cost (based on ten years) that were previously accounted for must be added to the taxable gain. According to Sec. 30 (3) Income Tax Act, these costs are included in the speculative gain and are therefore subject to the special tax rate of 25%.
In the event of the sale of leased properties defined as “old cases”, the sales profit will principally be subject to a flat 3.5% tax rate on the sales proceeds. However, added to this amount will be a 25% tax applied on 50% of the depreciated production costs accounted for during the last 15 years prior to the sale (normally depreciable over 15 years, in special cases over 10 years).
4. Loss of the depreciation of one tenth or one fifteenth
If the seller has filed an application for depreciation of outlays for maintenance, repair and construction in partial amounts pursuant to Section 28 paras 2, 3 and 4 EStG 1988 (depreciation of one tenth or one fifteenth, respectively), the right of depreciation of the one tenth or one fifteenth amounts not claimed at the time of the sale will be lost for both the seller and the buyer (special regulation in case of acquisition mortis causa).
5. Adjustment of VAT input tax and VAT
VAT input taxes resulting from purchase and production costs and from major repair work must be adjusted on a pro-rated basis during the following 19 years, if conveyed between living persons. For investment properties which were used before April 1, 2012 there are transitional provisions with a nine-year adjustment period. A legal successor using a property as an investment object, such as an apartment building, can avoid an adjustment of the VAT input tax, by adding 20% VAT to the sales price. As the VAT is part of the purchase price, a pertinent reference must be included in the purchase agreement.
The effects of the First Stability Act 2012 should be noted in the event that the tenant's right to deduct the VAT input tax does not apply on almost all of the tenant's revenues. It is therefore recommendable to discuss the VAT-related aspects with a tax advisor in detail before the purchase contract is drawn up.
6. Sale of real estate consisting of woodland
The hidden reserves from the standing wood will be disclosed and subject to tax.