Capital gain tax - German resident selling a house in the USA

[Nixon]

Hello all,

I was reading another post and just thought of this part of taxation.
Capital gain tax. What happens if a US citizen, German resident sells a house in the USA after having it for longer than 10 years (Selling price is higher than purchase price)? Who has the right of taxation in a case like this, Germany probably wouldn't since property would be owned for longer than 10 years prior the sale, but would the USA tax it in that case? I am assuming Double Taxation Agreement has a few words about cases like this?

Thanks,
Nixon.

[PandaMunich]

Capital gain tax. What happens if a US citizen, German resident sells a house in the USA after having it for longer than 10 years (Selling price is higher than purchase price)? Who has the right of taxation in a case like this, Germany probably wouldn't since property would be owned for longer than 10 years prior the sale, but would the USA tax it in that case? I am assuming Double Taxation Agreement has a few words about cases like this?

Only the USA have the right to tax the gain (= profit) from the sale of US real estate, see article 13 (1) of the double taxation agreement regarding income tax (DTA): http://pinkernell.de/dbausa.htm#Art13

However, Germany reserves the right to use that profit when setting the German income tax rate, i.e. to increase your German income tax rate on your other income (= on the income on which Germany does have the taxation rights) because of the profit from the sale of your US real estate.
This is called Progressionsvorbehalt and is allowed by article 23 (3) a) of the DTA: http://pinkernell.de/dbausa.htm#Art23
Please scroll down to the section "Progressionsvorbehalt" to see an example with numbers of the effect of Progressionsvorbehalt: https://expertise.tax/en/faq-german-tax ... /#resident

However, if you had owned the US real estate for more than 10 years (they go by the dates of the sale contracts), then no Progressionsvorbehalt is applied.
Why?
Because if that had been German real estate, the profit from the sale wouldn't have been taxed either and a DTA cannot be "steuerbegründend", i.e. taxation does not simply get created by a DTA if there is no such taxation in German national tax law, see here (this is a Haufe article which resists translation by GoogleTranslate, so just copy the text into DeepL.com to translate it into English): https://www.haufe.de/finance/haufe-fina ... 33647.html

[Nixon]

Thank you Panda!