German Tax Perspective · Germany–U.S.
Sale of U.S. Real Estate
If a German resident sells real estate in the United States, the United States may generally tax the gain as the situs state. For German tax purposes, the next questions are how the gain is exempted under the treaty, whether it affects the German tax rate through progression, and how the gain relevant for German purposes must be calculated.
Situs State
The United States May Generally Tax Gains From U.S. Real Estate
Under Article 13 of the Germany–U.S. tax treaty, gains from the disposal of immovable property may be taxed in the country where the property is located. For directly held U.S. real estate, the United States therefore generally has the taxing right.
If the seller is resident in Germany, the German analysis does not end there. The next step is the German relief method under Article 23 of the treaty and German income-tax law.
German Framework
Three Questions Determine the German Consequence
Direct Ownership or Entity?
Treaty and tax consequences can differ substantially depending on whether the property is held directly or through an LLC, partnership or corporation.
What Is the German Gain?
Acquisition cost, improvements, selling expenses and currency conversion must be determined under German rules.
Which Treaty Method Applies?
For directly held U.S. real estate of a German resident, the exemption method generally applies, with a possible progression effect.
Germany
The Gain Is Generally Exempt but Can Affect the German Tax Rate
For directly held U.S. real estate owned by a taxpayer resident in Germany, the gain allocated to the United States under the treaty generally falls under the exemption method.
The gain is therefore generally not subject to German income tax again. It can, however, be relevant under Section 32b EStG for the German progression mechanism and thereby increase the tax rate applied to other income taxable in Germany.
- U.S. taxing right because the property is located there
- German treaty exemption generally applies
- possible progression under Section 32b EStG
- German gain must be calculated separately
- do not simply adopt the U.S. taxable gain
- retain historical records and euro calculations
German Gain Calculation
The Gain Relevant for Germany Can Differ From the U.S. Capital Gain
Acquisition Cost
Historical acquisition cost and related acquisition expenses must be determined under German rules and, where relevant, translated into euros.
Capital Improvements
Subsequent construction or improvement costs can increase tax basis. German classification does not necessarily follow the U.S. tax basis.
Selling Expenses
Brokerage fees, legal costs and other expenses directly attributable to the sale can be relevant for the German gain calculation.
Currency
Acquisition and sale may be years apart. Different EUR/USD exchange rates can cause the German gain to differ materially from the U.S.-dollar gain.
Depreciation
Depreciation Can Create Additional Differences Between the Two Tax Systems
If the U.S. property was rented, depreciation may have been relevant both in the United States and for German tax purposes. Depreciable basis, useful life and tax treatment do not necessarily match.
In the United States, depreciation recapture or Section 1250 treatment can become relevant on sale. That U.S. characterization is not automatically controlling for German tax purposes.
A separate German gain therefore has to be determined for progression purposes.
FIRPTA
FIRPTA Is U.S. Withholding, Not the Final Tax
When a foreign person disposes of a U.S. real property interest, FIRPTA can require the buyer to withhold part of the amount realized. The general withholding rate is generally 15%.
The withholding is not a flat final tax on the gain, but a prepayment against the actual U.S. tax liability. The final U.S. tax is determined through the U.S. tax return.
For German purposes, the key point is that the amount withheld under FIRPTA determines neither the German gain nor the German treaty exemption.
- FIRPTA generally applies to foreign persons
- general rate: 15% of the amount realized
- withholding ≠ final U.S. tax
- actual U.S. gain is calculated separately
- a withholding certificate can be relevant
- German treaty treatment must be reviewed independently
State Tax
State-Level Tax Must Be Reviewed Separately From Federal Tax
Depending on the state where the property is located, the sale can also trigger state income tax, transfer tax or other state and local taxes.
The Germany–U.S. tax treaty applies at the federal level and does not automatically resolve every state-tax issue. For the German analysis, it is therefore necessary to distinguish which U.S. tax was imposed at which level and what German consequence follows.
Direct Ownership or Entity
An LLC, Partnership or Corporation Can Change the Applicable Treaty Analysis
Directly Held Property
The classic case generally falls under the treaty provisions for immovable property and gains from its disposal.
U.S. LLC
From the German perspective, the first question is whether the LLC is treated as transparent or as a corporation.
Partnership
Where income is attributed transparently, the real-estate gain can remain relevant at partner level; the specific treaty allocation must be reviewed.
Corporation
If shares in a corporation are sold rather than the property itself, the tax analysis can differ fundamentally from a direct real-estate sale.
U.S. Person or Non-U.S. Person?
The Seller's U.S. Status Mainly Changes the U.S. Side
Non-U.S. Person
For a German-resident non-U.S. owner, U.S. source-country taxation and German treaty exemption are central. FIRPTA generally has to be reviewed.
U.S. Citizen
A U.S. citizen is already subject to U.S. worldwide taxation. FIRPTA is generally not the typical issue for a U.S. person, but German and U.S. gain calculations still remain separate.
U.S. Tax Perspective
FIRPTA, U.S. Capital Gain and Depreciation Recapture Belong on taxrep.us
This page addresses the sale from the German tax perspective. The full U.S. calculation — including FIRPTA, adjusted basis, depreciation recapture, federal capital gains, state tax and U.S. filing — is covered on taxrep.us.
Open U.S. tax perspective on taxrep.usRelated Guidance
Related Topics
Frequently Asked Questions
Sale of U.S. Real Estate
Do I have to pay German tax on the gain from U.S. real estate?
Is the U.S. capital gain also the German gain?
What is the FIRPTA withholding rate?
Is FIRPTA the final tax?
What happens to the gain in Germany?
What changes if the property is held through an LLC?
Germany–U.S. Tax Advice
Are You Selling Real Estate in the United States?
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