Sale of a property with a home office

The sale of an owner-occupied property within the ten-year holding period does not generally result in a pro rata tax liability on the capital gain attributable to a home office.

If a property is sold within ten years of acquisition, the capital gain is taxable. There is an exception to this rule for owner-occupied real estate. But even here, the tax office will hold out its hand on a pro rata basis if a home office has been used to generate income and has been claimed for tax purposes.

However, the Federal Fiscal Court (Bundesfinanzhof) has now contradicted this and exempted the entire capital gain from tax in the case of a property used for the owner's own residential purposes. In its opinion, neither the wording of the law, nor the explanatory memorandum to the law, nor the purpose of the law provide any indication that the legislator intended to exclude a home office from tax relief. Moreover, the term "home office" regularly includes at least minor use for one's own residential purposes, which means that this would also be covered by the exemption provision.

However, the ruling only applies to certain types of income (e.g. employees and landlords). If an entrepreneur's home office becomes an independent asset in the business assets and then a withdrawal profit is incurred as a result of the sale, it remains subject to tax.