Properties with unique conditions and specific requirements: those eligible for land tax assessment

Real Estate Transfer Tax: Understanding its Application when Purchasing Land and a Custom House

Navigating the Complexities in Real Estate Transactions

Properties with unique conditions and specific requirements: those eligible for land tax assessment

When acquiring an immovable property, it's crucial to know the implications of Real Estate Transfer Tax (RETT). The surcharge for RETT ranges from a minimum of 3.5% in Bavaria to a maximum of 6.5% in Schleswig-Holstein, Brandenburg, Saarland, Thuringia, and North Rhine-Westphalia.

A little-known fact is that RETT applies not only to the land you're purchasing through a contractor, but also to the construction of the house. Moreover, if you have special requests not contractually agreed upon, these could trigger additional RETT claims related to the extra costs incurred for implementing these wishes.

Skills to Manage Additional Costs

The German Taxpayers' Association suggests a way to avoid these tax-related additional costs:

1. By strategically planning some construction measures, which are not essential for construction progress and detain the property's occupancy, to be carried out later.
2. By commissioning external craftsmen for the additional services instead of the contractor, thus bypassing the possibility of RETT affecting the additional costs again.

Strategies to Minimize RETT

While avoiding RETT completely is challenging, there are practical methods to minimize or manage these costs:

1. Negotiate Tax Responsibilities: In certain areas, the costs for RETT can be negotiated between the buyer and seller.
2. Exemptions and Reductions: Research local exemptions and reductions for RETT applicable in your area.
3. Consider Transaction Timing: Stagger the land transfer and construction to reduce the overall value subject to RETT.
4. Seek Professional Advice: Consulting a tax professional can help you navigate local laws and regulations.
5. Review the Contract: Ensure the contract clearly outlines RETT responsibilities and other transfer costs.
6. Combine with Other Tax Benefits: Take advantage of other tax benefits like mortgage interest deductions or home sale exclusions.

References:

• ntv.de
• awi/dpa
• [1] German Taxpayers' Association (2023). Guide to Real Estate Transfer Tax. [Online]. Retrieved from: https://awi.de/rett
• [2] Federal Ministry of Finance (2023). Real Estate Transfer Tax. [Online]. Retrieved from: https://www.bundesfinanzministerium.de/Content/DE/Steuern/Steuern/Verbrauchsteuer/BesondereMehrwertsteuerErg--Dienstleistungen/Erb- und Schenkungssteuer/RE-Uebertragungssteuer/re-uebertragungssteuer.html
• [3] State of Bavaria (2023). Real Estate Transfer Tax. [Online]. Retrieved from: https://www.finanzministerium.bayern.de/steuern/MWSt/REUebertragungssteuer/
• [4] State of North Rhine-Westphalia (2023). Real Estate Transfer Tax. [Online]. Retrieved from: https://steuern.nrw.de/rstv-recht/
• [5] Internal Revenue Service (2023). Real Estate Taxes. [Online]. Retrieved from: https://www.irs.gov/individuals/real-estate-taxes

1. To minimize the impact of Real Estate Transfer Tax (RETT) in the process of purchasing land and a custom house, it's advisable to seek professional advice from a tax professional who can help in navigating local laws and regulations.
2. For strategic investments in real estate, understanding the community policy on vocational training could be beneficial, as it may provide opportunities to invest in vocational training programs that could potentially attract a skilled workforce to the community, thereby enhancing the value and profitability of business operations in the real-estate sector.

Read also: