German Tax Perspective · Inbound Move
Moving from the U.S. to Germany With Existing U.S. Real Estate
If you move from the United States to Germany and retain U.S. real estate, the property enters a new tax system from the German perspective. Once German tax liability begins, rental income, depreciation, historical acquisition costs and a later sale also have to be analyzed under German tax rules. The United States retains its taxing rights as the situs state.
Beginning of German Tax Liability
After the Move, the U.S. Property Becomes Relevant for German Tax Purposes
If the owner establishes a residence or habitual abode in Germany, unlimited German income-tax liability generally begins. From that point, foreign-source income is also included in the German tax analysis.
For U.S. real estate, this does not mean that Germany takes over the primary taxing right. The United States may continue to tax income and gains from U.S. real estate as the situs state.
What Should Be Documented Immediately
The Move Is the Right Time to Build a German Tax History
Acquisition Documents
Purchase agreement, closing statement, purchase price, closing costs and allocation between building and land.
Improvements
Renovations, additions and other capital improvements made since acquisition.
U.S. Tax History
Depreciation schedules, prior Schedule E information and other basis documentation.
No Automatic German Step-Up
The German Tax Basis Generally Does Not Restart at Fair Market Value on the Arrival Date
U.S. real estate already owned before the move is generally not automatically treated for German tax purposes as newly acquired at current fair market value on the date of arrival.
Instead, historical acquisition and construction costs must be reconstructed for the German tax calculation. For property held for many years, this can require substantial historical documentation.
- retain the historical purchase price
- reconstruct building and land allocation
- record later capital expenditure
- determine historical euro values
- build a separate German depreciation history
- do not automatically copy the U.S. tax basis
Currency Conversion
The German Tax Basis Must Be Reconstructed in Euros
For German tax purposes, U.S.-dollar values are not simply carried over unchanged. Historical purchase price, improvements, ongoing income and expenses, and a later sale must be translated into the German euro-based tax framework.
For long-held property, exchange-rate movements can cause the German and U.S. tax bases to diverge materially.
Ongoing Rental
After the Move, Rental Income Must Also Be Calculated Under German Rules
If the U.S. property is rented out, the United States may tax the rental income as the situs state. Germany nevertheless requires its own rental-income calculation under German tax law.
For directly held U.S. real estate, the German income amount is generally exempt under the treaty but can be relevant under Section 32b EStG for progression.
U.S. Calculation
Separate U.S. rules for rental income, expenses, depreciation and, where relevant, state tax.
German Calculation
Separate German rules for income, deductible expenses, depreciation and euro conversion.
German Depreciation & U.S. Depreciation
U.S. Depreciation and German Depreciation Run in Parallel After the Move
U.S. depreciation cannot simply be used as German depreciation. Germany applies Section 7 EStG and requires its own depreciation basis.
Building and land must be separated. Later improvements and relevant acquisition or construction costs must be integrated into the German depreciation history.
Personal Use
Even a Personally Used U.S. Property Should Be Documented at the Time of the Move
If the property is not rented out, there may be no ongoing German rental income. Nevertheless, acquisition costs, use history and capital improvements should still be documented because they can become relevant on a later sale.
For a vacation property, the German treatment under Section 23 EStG can also matter, especially the holding period and owner-occupancy rules.
Later Sale
After the Move, Germany Can Require Its Own Sale-Gain Calculation
If the owner later sells the U.S. property while resident in Germany, the United States may generally tax the gain as the situs state.
Germany must nevertheless determine a separate gain under German law and in euros. For directly held U.S. real estate, treaty exemption generally applies, with possible relevance for progression.
- calculate the German gain separately
- use historical euro acquisition costs
- take the German depreciation history into account
- include selling expenses
- review treaty exemption
- review progression
Section 23 EStG
German Domestic Taxability Is a Separate Step
For privately held real estate, it must also be determined whether the sale is taxable under German domestic law. In particular, the ten-year period under Section 23 EStG can be relevant.
The question whether a gain is taxable under German domestic law and the subsequent treaty exemption analysis are separate issues.
LLC & Entity Ownership
For a U.S. LLC, Direct-Ownership Treatment Cannot Simply Be Assumed
If the property is held through a U.S. LLC, Germany must first classify the LLC under German tax law. U.S. tax transparency is not automatically controlling for the German analysis.
Depending on the German classification, the property may be attributed directly to the owner or remain at the level of a separate entity. That can affect rental income, treaty treatment and a later sale.
Year of the Move
Rental Income and Sale Events Must Be Allocated by Period
If the move occurs in the middle of a calendar year, it is necessary to determine which income and events fall before and after the start of German tax liability.
Especially where a sale occurs shortly before or after the move, timing can materially affect the German tax treatment.
U.S. Tax Perspective
The U.S. Tax Treatment Is Covered in Detail on taxrep.us
U.S. taxation of the property does not simply end when the owner moves to Germany. U.S. rental taxation, depreciation, basis, FIRPTA, federal filing and, where relevant, state tax continue to require analysis under U.S. law.
Open U.S. tax perspective on taxrep.usRelated Guidance
Related Topics
Frequently Asked Questions
Moving U.S. → Germany With U.S. Real Estate
Do I have to report my U.S. property in Germany after I move?
Do I receive a fair-market-value step-up when I move to Germany?
Can I use my U.S. depreciation in Germany?
Who taxes the rental income?
What happens if I later sell the property?
What changes if the property is held through a U.S. LLC?
Germany–U.S. Tax Advice
Are You Moving From the U.S. to Germany and Keeping U.S. Real Estate?
We build the German tax history of the property, review depreciation, euro values, rental income, treaty exemption and progression, and coordinate the German treatment with continuing U.S. taxation.
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