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Convert a commercial property tax free and speculation tax free into 8 condominiums with subsequent sale by brother and sister.

August 9, 2013 | 25,00 EUR | answered by Steuerberater Thomas Textoris

A six-family house, owned by the family since 1950 (mother, 6 rental apartments) with a room in the basement that can be used as an office after division (the room has never been rented out) and an undeveloped attic, is owned by a brother and sister (each 50% of the house) after the mother's death in 2009.

The brother has a right of residence and uses it. The sister receives part of the rent and currently does not use any apartment or right of residence.

If the house were now to be divided into 8 condominiums (6 existing rental apartments plus attic plus office) and the brother and sister each receive 4 units at 100%.

A parking space on the courtyard will be allocated to each condominium / office / attic in the declaration of division to be issued.

How would the tax situation be if all 8 units were sold in one year after division into condominiums?

Would the house, which was tax-free for speculation tax and trade tax "BEFORE" division, become subject to speculation tax and trade tax for the sibling pair after division into condominiums according to the Condominium Act?

If so, how could this be avoided or prevented?!
Best regards

Steuerberater Thomas Textoris

Dear inquirer,

In the context of an initial consultation and your payment of fees, taking into consideration the rules of this forum, I would like to answer your question.

The conversion of rental apartments into condominiums does not initially have any tax implications.

When selling the condominiums, a commercial real estate trade would first need to be considered, leading to a resulting liability for trade tax.

An indicator for the existence of a commercial real estate trade is the so-called "Three-Object-Limit". Generally, the sale of more than three properties within a five-year period is considered commercial.

However, the sale of an inherited property is not included in the "Three-Object-Limit".

There is no commercial real estate trade and resulting trade tax liability.

A taxable speculative transaction would only occur if the period between the acquisition by the predecessor (mother) and the sale is less than 10 years. The acquisition date of the mother is relevant (§ 23 (1) sentence 3 EStG).

Therefore, a private sale as defined in § 23 EStG does not apply, as the acquisition (based on your information) was in 1950.

Best regards,

Thomas Textoris
Tax consultant