The SPD and Bündnis 90/Die Grünen have expressed their interest in moving away from the previous regulation on the tax-free sale of privately held properties after a ten-year speculative period. At least the SPD, as a junior partner of the current government, would have the opportunity to influence it. So is the abolition of the speculative period for rented properties in private property threatened? We explore this speculation in this article and also answer the question of what may happen should the abolition of the speculative period for real estate actually occur.

1. Abolition of the speculative period for real estate – Introduction

There was once a time when private real estate sales were still tax-free. However, those times have long gone by. As early as 1920, the legislature incorporated a regulation into the Income Tax Act, which assumed a speculative intention for taxpayers who sold assets from their private assets within a certain period of time. Of course, the assumption of the purchase of real estate, for example, with the aim of making short-term profits, was tax relevant. In contrast, a sale after this period assumed that the property was purchased without speculative intention. At that time, the speculative period was already ten years (§ 12 no. 13 EStG in the version of 29 March 1920, Reichsgesetzblatt page 363). But already in 1934 the first speculative period for real estate was abolished.

2. Speculation period for real estate: when was it introduced?

Now, in the 1970s, the legislature has apparently decided to reintroduce the taxation of private real estate sales. Almost 79 years to the day after the introduction of the original speculative period, the Tax Relief Act 1999/2000/2002 of 24 March 1999 revised it. This resulted in a tightening for properties that are less than ten years in private assets. Thus, the tax-free sale of real estate in Germany was only possible after a period of ten years.

The background to this tax measure was that it was intended to prevent real estate as a speculative object from leading to a general increase in prices. There was concern that short-term investment in residential real estate could contribute to a destabilization of the real estate market. The housing market in particular would have suffered. Since this already showed signs of overheating at that time, the legislator wanted to take away the incentive for such short-term investments. The taxation of profits from the sale of real estate within the speculative period was thus a classic steering tax.

3. Abolition of the speculative period for real estate: what speaks for it?

The current speculative period seems obsolete to the SPD in particular, because it is thought that profits from the sale of real estate should in principle be taxable. The reason for this assumption is likely to be especially the currently (or notoriously) increased financial needs of the federal government. It is therefore simply a question of higher taxes.

The SPD thinks in parts, however, more of an extension of the speculative period for real estate, less of its abolition. At the very least, the abolition of the speculative period under the current legal situation would, strictly speaking, allow the tax-free sale of real estate at any time. Instead, the SPD wants to achieve the exact opposite, namely that the sale of real estate should be taxed at all times. Excluded from this are only self-used real estate.

It is therefore clear that the SPD is concerned with abolishing the possibility of tax-free sale of real estate. Since this can hardly be sold to the voters politically as social progress, the alternative has apparently been opened up to extend the speculative period instead. It would then possibly be extended to 15 years. However, this would in principle preserve the tax-free sale; only the temporal component of the previous scheme would be tightened. However, it would then be questionable whether the SPD would be permanently satisfied with such a solution. It is quite possible that the next thing that comes to mind is the abolition of any tax exemption related to real estate.

4. And what speaks against the abolition of the speculative period?

Normally, however, the voters of the coalition partner CDU/CSU belong to exactly those who tend to be real estate owners. Therefore, for purely logical reasons, it is hardly likely that this advance of the SPD will meet with reciprocal love. The suspicion is therefore that the proposal to abolish the speculative period for real estate could be a purely tactical move. Maybe you want to show your own party base that you are trying to increase taxes. Since this can be combined with the argument that it will also be possible to regulate prices on the property market so that housing could become more affordable again, this proposal would indeed have a logical basis. But is that really the case?

Now, in addition to the unlikely event that the Union agrees to this proposal, another factor would also speak against it. In fact, the members of the Bundestag are among the top earners in Germany. Those who hold a mandate in the Bundestag long enough hardly miss the question of acquiring a property. Therefore, it is quite possible to assume that many Members of Parliament themselves incorporated real estate into their private assets some time ago. If they now tightened the speculative period, this would be a considerable disadvantage for themselves. Because then they would also have to tax the profit from their property sales.

5. Effects of the abolition of the speculative period for real estate

Another question we want to look at is the “what if”. Let us speculate briefly what property owners who would be affected by such a change in the law would have to expect.

If, for example, at the time of the abolition of the speculative period, real estate has been held in private ownership for less than ten years, you are automatically subject to the new regulation. The sale of the property would thus be taxable even if you waited with the sale until the original deadline had expired. Depending on the amount of the increase in value, a sale as early as possible could then make sense, although it would then be taxable. Because the longer you wait, the greater the profit and thus the tax. After all, on the one hand the property value increases, on the other hand the depreciation year after year also the acquisition costs decrease, albeit indirectly. The profit-making difference increases every year, which is precisely what makes it so attractive to comply with the speculative period.

The other case is equally interesting. If the blocking period has already been exceeded at the time of the abolition of the speculative period, the sale remains largely tax-free. Only the part of the profit generated after the change in the law would then be taxed. This is because a change in the law must not have any retroactive effect. In the opinion of the Federal Constitutional Court, such a law would be unconstitutional. So anyone who has already exceeded the speculative period can rely on the old legal situation that once granted him the tax exemption.

6. Will the speculative period for real estate be abolished? Our conclusion

The current political debate around the abolition of the speculative period is anything but new. This alone is an indicator of the rather low probability that such a tightening of the legal situation actually occurs. Furthermore, many decision-makers themselves are likely to be affected by the abolition of the speculative period. There may be idealists who consider the good purpose of such a scheme to be more important to the general public. Nevertheless, it is questionable whether they can bring together a decisive majority. This is likely to fail quite quickly, if only because of the Union's veto. Therefore, we take a critical view of such political considerations and do not attach much weight to them – for now.