The ten-year holding period for property

What the ten-year holding period covers

If you sell a property from your private assets, the law calls this a private sale transaction. It is governed by § 23 para. 1 no. 1 EStG (Income Tax Act). The idea behind it is simple. Anyone who buys and resells quickly to profit from rising prices should pay tax. Anyone who holds on for a long time should not.

The threshold is ten years. If more than ten years pass between purchase and sale, the entire gain remains tax-free, however large it is. If you sell earlier, the gain is added to your income and taxed along with it.

The most important point first: neither the day the keys are handed over nor the day you were entered in the land register (Grundbuch) counts. What counts is the date on the purchase contract signed at the notary, both when buying and when selling. If you bought on 3 March 2016, you can sell tax-free from 4 March 2026.

The exception: owner-occupied homes

There is an exception for property you have lived in yourself. The sale remains tax-free even within the ten years if you lived there, either

• for the entire time between purchase and sale, without interruption, or
• in the year of the sale and in the two calendar years before it.

The second option is the more important one, and it is often misunderstood. It does not have to be three full years. It is enough that you lived there in three calendar years.

An example: you move in during December 2024, live there throughout 2025 and sell in January 2026. According to the wording of the law, the condition is met, even though you have lived there for barely a year. This is exactly why it pays to work through the sale date with your tax adviser beforehand.

Living there yourself means that you live there. It counts the same if a child lives there rent-free for whom you receive child benefit or the child tax allowance. If, on the other hand, you let your parents or other relatives live there, the courts do not accept this. And if you let the property in between, you can lose the tax exemption.

How the taxable gain is calculated

The gain is not simply the sale price minus the purchase price. The calculation is: sale price, minus what the purchase cost in total at the time, minus what the sale costs today. Besides the price, the purchase costs include the real estate transfer tax (Grunderwerbsteuer) paid at the time, the notary and land registry fees and the agent's commission you paid back then.

Almost everyone overlooks one point. If you let the property, you were able to claim depreciation every year, meaning you deducted part of the purchase price from your taxes. This lowers the purchase price the tax office uses when you sell. Your gain becomes higher as a result. That can shift the amount considerably.

You may deduct what the sale costs: your half of the agent's commission, the energy performance certificate, the deletion of old land charges. If a gain remains after that, you pay tax on it at the same rate you pay on your salary. The 25% rate that applies to interest and shares does not apply here.

Gains of up to €1,000 a year remain tax-free (§ 23 para. 3 sentence 5 EStG, since 2024). For property, this rarely helps. The limit applies to all private sales in a year combined, and if you exceed it by even one euro, you pay tax on the whole amount. Your tax adviser will clarify what applies in your case.

Special case: inherited and gifted property

If you inherit a property or receive it as a gift, you do not start a new ten-year period. In the eyes of the law, inheriting and gifting are not a purchase. You step into the position of the previous owner. The day on which they bought still counts.

For heirs, this is usually good news. If the deceased bought the house in 1998, a sale by the heirs today is tax-free, no matter when the death occurred. But it can also work the other way round. If they bought only three years ago, the period continues to run for you, and a quick sale will cost you tax.

The owner-occupier exception can also apply. If the deceased lived there until the end, this can help the heirs. The conditions are narrow and it depends on the individual case, especially when several people inherit. How it works then is explained in the article on property in a community of heirs.

The three-property limit: when a private sale becomes a trade

Besides the ten-year holding period (Spekulationsfrist), there is a second trap, and it is more expensive. Anyone who buys and resells more than three properties within about five years is usually treated as a commercial dealer under the case law of the Federal Fiscal Court (Bundesfinanzhof). The tax office then regards them as a business. This three-property limit is not a fixed rule but a guideline.

The consequences are harsh. Every gain becomes taxable, however long you owned the property. Trade tax comes on top. And the tax exemption after ten years disappears completely.

If you own several properties and want to sell, discuss the order and the intervals with your tax adviser beforehand. A notary appointment postponed by two months can decide everything here.

What this means for planning your sale

Before you fix a date, put three dates side by side. When was your purchase contract signed at the notary? When did you live there yourself? When do you want to sell? These tell you whether any tax is due at all.

Often a few weeks make the difference. If your ten years run out in spring, it can pay to plan the sale so that the notary appointment falls after that date.

But it can also go wrong. If you wait while prices are falling, you save tax but lose more on the price than you saved. This calculation only works with a reliable valuation. We provide one free of charge.

Sources

• § 23 EStG (Income Tax Act), private sale transactions
• § 15 para. 2 EStG (Income Tax Act) in conjunction with the case law of the Federal Fiscal Court (Bundesfinanzhof) on commercial property dealing (three-property limit)
• § 18 GrEStG (Real Estate Transfer Tax Act), notaries' duty to notify