When a community of heirs sells an inherited property, two taxes come into play at once – and both are distributed among several shoulders. Unlike a sale by a single heir, the profit is divided according to inheritance shares, and each co-heir taxes their share at their own tax rate. We explain which taxes apply to a joint sale, how the speculation tax is distributed among the co-heirs, and how to properly dissolve the community of heirs for tax purposes.
Inheritance Tax and Speculation Tax: Two Different Things
When an inherited property is sold by several heirs, two completely different taxes are often confused:
- Inheritance tax is incurred once, when you inherit. The value of your inheritance share at the time of death is taxed.
- Speculation tax is incurred only later, when you sell the property at a profit. The increase in value between acquisition and sale is taxed.
Both taxes affect each co-heir individually – not the community of heirs as a whole. And both look at different values: inheritance tax at the market value on the date of death, and speculation tax at the profit since the original purchase by the deceased person.
Inheritance Tax: Each Co-Heir Has Their Own Tax-Free Allowance
For inheritance tax purposes, it is not the community of heirs that is taxed, but each co-heir for their personal share of the estate. The amount of tax depends on the degree of relationship to the deceased person. The personal tax-free allowances under § 16 ErbStG have remained unchanged for years:
- Spouses and registered civil partners: 500,000 euros
- Children and stepchildren: 400,000 euros each
- Grandchildren: generally 200,000 euros (400,000 euros if the intervening child has already died)
- Siblings, nieces, nephews and unrelated heirs: 20,000 euros
Each heir deducts their tax-free allowance from their share; only the excess is taxed. Three children who inherit a parental home worth 600,000 euros in equal shares each receive 200,000 euros, well below their tax-free allowance – no inheritance tax is due. There is an additional separate exemption for the owner-occupied family home: The surviving spouse inherits it tax-free if they continue living there for ten years; children likewise, although limited to 200 square meters of living space.
Speculation Tax on a Joint Sale: Pro Rata per Heir
The speculation tax is usually more expensive. It is not a separate type of tax, but rather income tax on a private disposal transaction pursuant to Section 23 EStG. It applies if no more than ten years lie between acquisition and sale.
The decisive point for heirs: Inheriting itself is not an acquisition. Under Section 23 (1) sentence 3 EStG, the heirs step into the deceased person’s shoes – what matters is when the deceased purchased the property, not when you inherited it. This means:
- If the deceased person owned the property for more than ten years, you can sell immediately tax-free – regardless of the amount of the profit.
- If their purchase was less than ten years ago, you take over the remaining period. A sale within this period triggers speculation tax.
If the community of heirs sells jointly to a third party, the taxable profit is first determined uniformly and then distributed among the co-heirs according to their inheritance shares. Each person taxes their share at their personal tax rate of around 14 to 45 percent. This is precisely the major difference from a sale by a single heir: With multiple heirs, the same sale can trigger very different tax burdens – the co-heir with a high income pays noticeably more than the co-heir on parental leave or receiving a pension. Each heir also declares their share themselves in Annex SO of their tax return and has their own annual tax-free allowance of 1,000 euros.
The sale also remains tax-free within the period if the property was most recently used for the owner’s own residential purposes – specifically in the year of sale and the two preceding years. Whether use by the deceased or by the heirs counts depends on the individual case and should be checked in advance.
Calculation Example: Three Siblings Sell the Family Home
Assume that three siblings inherit equal shares of a rented condominium. Their parents purchased it in 2019 for 300,000 euros; in 2026, the community of heirs sells it for 420,000 euros. Because fewer than ten years lie between the parents’ purchase and the sale, the sale is taxable.
- Sale price: 420,000 euros
- less the parents’ acquisition costs: 300,000 euros
- taxable profit: approximately 120,000 Euros (simplified, before deducting selling costs and depreciation effects)
This profit is divided equally among the three siblings – around 40,000 euros each. Each person pays tax on their 40,000 euros at their personal tax rate. For the high-earning brother with a rate of 42 percent, that amounts to around 16,800 euros; for the sister on parental leave with a low tax rate, significantly less. Had the parents purchased the apartment before 2016, the same sale would have remained completely tax-free for all three.
Ways out of the community of heirs: sell, take over, auction
Under § 2042 BGB, any co-heir may demand the partition – that is, the division of the estate – at any time. For a property, there are three typical options, which have different tax implications:
- Joint sale to third parties: All heirs sell together and divide the proceeds according to their shares. As described above, the speculation tax is distributed proportionately. The heirs do not incur real estate transfer tax – the buyer pays it.
- Takeover by one co-heir (withdrawal from the community): One heir takes over the property and pays the others compensation for their shares. For the acquiring heir, this constitutes an acquisition for consideration and establishes their own acquisition costs.
- Partition auction: If the heirs cannot reach an agreement, any of them may apply for a compulsory auction to dissolve the community. This is the slowest and usually most expensive solution, because the proceeds from the auction are often below the open-market value.
In 2023, the Federal Fiscal Court ruled in favor of the heirs regarding the sale of the inherited share (case no. IX R 13/22): Anyone who sells their share in the community of heirs – or purchases the shares of the co-heirs and subsequently sells the property – does not thereby effect a private disposal transaction. For tax purposes, the inherited share cannot be equated with the individual property. Because such arrangements are complex and each individual case matters, you should always obtain tax advice beforehand.
Real estate transfer tax: usually not an issue for the heirs
Real estate transfer tax generally does not affect the selling community of heirs:
- The inheritance itself is exempt from real estate transfer tax under § 3 no. 2 GrEStG; it is subject solely to inheritance tax.
- If a co-heir takes over the property for the purpose of partition of the estate, the exemption under Section 3 no. 3 GrEStG applies – no real estate transfer tax is payable in this case either.
- If the heirs sell to an unrelated buyer, the buyer pays real estate transfer tax of 3.5 to 6.5 percent, depending on the federal state. This is part of the buyer’s ancillary purchase costs, not a burden on you.
Advantages and disadvantages of the sales options
Which option is right depends primarily on the heirs’ agreement and the ten-year period:
- Advantage – joint sale: often the highest proceeds and the clearest distribution; each heir receives their share in cash.
- Advantage – takeover: The property remains in the family, and a single owner can subsequently dispose of it freely.
- Advantage – benefiting from the expiry of the period: If the deceased owned the property for more than ten years, the sale is tax-free for all heirs.
- Disadvantage – heirs who cannot agree: Even one co-heir blocking the process can delay the sale; ultimately, a partition auction may be threatened.
- Disadvantage – speculation tax: Within the period, each heir pays a proportionate share – with high increases in value, quickly amounting to five figures per person.
- Disadvantage – unequal burden: Different tax rates applicable to the heirs can lead to disputes over the distribution of the net proceeds.
FAQ on taxes in the community of heirs
Does the community of heirs pay, or does each heir pay individually?
For tax purposes, the individual co-heir is always assessed. The community of heirs is not itself a tax debtor: Each heir bears both inheritance tax and speculation tax for their own share.
When is the sale completely tax-free?
If the deceased person owned the property for more than ten years or if the property was most recently used for their own residential purposes. In that case, none of the co-heirs has to pay speculation tax.
How is the ten-year period calculated for inherited properties?
The decisive date is the day on which the deceased acquired the property, not the date of death. The heirs take over the ongoing period, including its remaining duration.
Is real estate transfer tax payable if one heir pays out the others?
No. If a co-heir takes over the property as part of the division of the estate, the transaction is exempt from real estate transfer tax under Section 3 no. 3 GrEStG.
Do I have to declare the sale in my tax return?
Yes. Each co-heir declares their share of the profit in Annex SO – even if the sale ultimately remains tax-free. The tax office checks the Requirements for tax exemption itself.
Conclusion: calculate early, decide together
When a community of heirs sells a property, one date is particularly decisive: the original purchase by the deceased. If it was more than ten years ago, the sale is tax-exempt for all co-heirs. Otherwise, each heir pays a proportional share of capital gains tax at their own tax rate – a point that should be taken into fair consideration when dividing the proceeds. Thanks to high tax-free allowances, inheritance tax is often not incurred at all in many families, and real estate transfer tax practically never applies to heirs. If you want to offer the property jointly, you can list it commission-free as a community of heirs via TraumImmo and subsequently divide the proceeds according to the respective shares. Because mistakes can quickly occur with multiple heirs, ongoing deadlines, and settlements, consulting a tax advisor early is worthwhile in cases of doubt – the savings usually significantly exceed the advisory costs.