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TAX & BUSINESS
Main Residence Exemption: Division into Tax‑Exempt and Taxable Areas
When a property that has served as a main residence is sold, the profit can be exempt from tax, at least up to a certain land size. But what happens if the land is larger or has different designations?
Profits from the disposal of a owner‑occupied house or condominium, including the associated land, are tax‑free if the property has served the seller as a main residence. For this, the seller must have lived in the flat or property either continuously for at least 2 years from acquisition to disposal, or continuously for at least 5 years within the last 10 years as a main residence, and must give up the main residence in the course of the disposal. According to the case law of the Administrative Court (Verwaltungsgerichtshof, VwGH), the main‑residence exemption with respect to the land is limited to the area that is normally required as building land, which is, according to administrative practice, a maximum of 1,000 m².
Sachverhalt
A owner sold a property that she had lived in herself during the two years preceding the sale. The property consisted of two parcels with the same cadastral unit number. On parcel 1 with a building was her main residence, parcel 2 comprised a smaller portion of building land and was otherwise mainly garden or green space. The owner assumed that the entire building land and only a small part of the green area fell within the 1,000 m² main‑residence exemption. The tax office exempted the profit attributable to parcel 1 in full, but based the allocation of the remaining tax‑free area on the ratio of green‑ and building‑land area on parcel 2.
Decision of the Federal Fiscal Court (Bundesfinanzgericht, BFG)
The BFG confirmed the tax office’s view. Where a parcel or several adjoining parcels are partially designated as building land and partially as green land, the tax‑free area must be determined according to the ratio of these designations. A typified average assessment is decisive, not the individual use, location or development of the parcel. Even if part of the garden is barely usable or the building land adjoins the residential house, this ratio method remains applicable.
In the concrete case, the area for the single‑family house serving as the main residence is first deducted from the 1,000 m², as this is fully exempt. The remaining tax‑exempt square metres are then filled proportionally with the green‑ and building‑land of parcel 2. The rest of the sold building and green area of parcel 2 is subject to tax.
Conclusion
The main‑residence exemption applies only to areas up to 1,000 m², regardless of the actual use. If the property consists of differently designated or differently valued areas, a division in proportion to the designations must be made, and the portion of value attributable to these 1,000 m² remains tax‑free. The remainder is subject to real‑estate capital gains tax.
Sachverhalt
A owner sold a property that she had lived in herself during the two years preceding the sale. The property consisted of two parcels with the same cadastral unit number. On parcel 1 with a building was her main residence, parcel 2 comprised a smaller portion of building land and was otherwise mainly garden or green space. The owner assumed that the entire building land and only a small part of the green area fell within the 1,000 m² main‑residence exemption. The tax office exempted the profit attributable to parcel 1 in full, but based the allocation of the remaining tax‑free area on the ratio of green‑ and building‑land area on parcel 2.
Decision of the Federal Fiscal Court (Bundesfinanzgericht, BFG)
The BFG confirmed the tax office’s view. Where a parcel or several adjoining parcels are partially designated as building land and partially as green land, the tax‑free area must be determined according to the ratio of these designations. A typified average assessment is decisive, not the individual use, location or development of the parcel. Even if part of the garden is barely usable or the building land adjoins the residential house, this ratio method remains applicable.
In the concrete case, the area for the single‑family house serving as the main residence is first deducted from the 1,000 m², as this is fully exempt. The remaining tax‑exempt square metres are then filled proportionally with the green‑ and building‑land of parcel 2. The rest of the sold building and green area of parcel 2 is subject to tax.
Conclusion
The main‑residence exemption applies only to areas up to 1,000 m², regardless of the actual use. If the property consists of differently designated or differently valued areas, a division in proportion to the designations must be made, and the portion of value attributable to these 1,000 m² remains tax‑free. The remainder is subject to real‑estate capital gains tax.