Deducting Losses from Private Sales

Prior to this ruling, the German tax administration vehemently refused to accept losses from selling private goods as a deduction in tax returns. Private sales, aka speculative trading or transactions, are such deals when goods are bought and sold within one year. The judges of BFH published a startling judgment on April 4, 2008 (re IX R 29/06).


Following this judgment, losses from private transactions (selling cars, TV sets, etc.) can be entered into your tax return. However, these losses will be settled against income from other private transactions. You will not be able to reduce the profit from any other source of income. Whenever you have speculative losses but not any income in that year, you can save this loss either for future years or subsequently reduce previous income from speculative profits.

What happened: Mario bought a convertible for € 58,500 in January. Later in this year he sold the car with a loss of € 4,700. Since purchasing and selling took place within one year, he declared this loss against “other income” in the schedule SO to his income tax return. As to be expected, his tax offices cut this deduct and argued that commodities subject to wear and tear are not able to obtain income.

In court Mario argued that the law does not support the judges’ theory. It is not written in the law that assets subject to depreciation are excluded from a private transaction. The judges affirmed Mario’s argument and he was able to deduct the  € 4,700 loss.

When reading between the lines of the judgment, the logical conclusion is that the rules of private speculation are also applicable to all other categories of merchandise and not only securities or cars. So when you buy a super-duper TV set just for the Olympics this year and sell within one year after purchase with a loss, you will get negative earnings from “other income”.


Whatever you can theoretically do, has its practical catch. In this situation there are two catches. When you want to deduct losses you must prove the existence of this loss. When buying and selling cars, this will not usually be a problem. Normally, cars are sold with a written contract. To prove the purchase or loss from items from flea market deals is another story. Therefore, if you want to deduct tax losses from private transactions, better keep a careful eye on written receipts.

And yet, there is still another side of the coin! When the German tax authorities become fully versed in the above ruling, any and all profits from private transactions will be taxed. For example, for a sales transaction involving a car, the motor vehicle department or car tax office can advise the income tax office responsible for the seller that they should determine whether a private transaction has occurred. Also internet auction houses will come under scrutiny of the tax administration. When somebody claims an item to be new, the tax office might explore if this is not to be taxed.

Published on the old CMS: 2008/8/1

Read on the old CMS till November 2008: 1253 reads

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