Practice rooms dissolved as operating assets or not
August 24, 2012 | 60,00 EUR | answered by Dr. Yanqiong Bolik
Following situation:
Married couple, both older than 55, she with her own practice in the basement apartment of the shared residential building. The 47 sqm practice has been half (owned by the wife) operating assets since 1998. So far, so good.
But: In 2005, the former practice rooms were completely rented at a reduced rate to the mother-in-law (landlords according to the lease were the husband and wife). At the same time, the practice was relocated to the ground floor and reduced to 17 sqm (these 17 sqm were not operating assets when considered separately).
In our 2004 tax return, we already specifically pointed out the changes, both regarding the relocation of the practice and the reduction to 17 sqm and the reduced rental. In our 2005 tax return, no proportional land values were shown in the profit summary of the practice to the tax office as before, and no building depreciation was carried out. The income from the reduced rental to the mother-in-law was shown as private rental and not as practice income. The tax office requested and received this lease agreement from us. A separate cover sheet was used to again point out the spatial changes and areas in Attachment V.
For us, it was clear that the operating assets were dissolved as of December 31, 2004. However, we did not calculate or show any book gains or losses, and assumed that the tax office would do so on its own. In fact, we have not heard anything for years from the tax office on this matter. The tax assessments are not provisional.
We are now not sure if we can consider the (former) operating assets as dissolved or maybe not. How do you see this?
And what would be the best course of action given that the practice was enlarged from 17 sqm to about 40 sqm on the ground floor from 2011, and these 40 sqm would again be operating assets on their own. We had to place the mother-in-law in a nursing home in August 2011, and since then, the 47 sqm she occupied has been vacant, or only furnished with her belongings.
Sincerely,
Otto Zimmermann
Dear carpenter,
Thank you for your inquiry, which I am happy to answer taking into consideration your efforts and the rules of this platform.
Please note that my explanation is based on the presented facts, and that adding, omitting, changing information, or the ambiguity of information can change the tax result.
We are currently unsure whether we can consider the (former) business assets as dissolved or perhaps not. What is your opinion on this?
- References to the relocation of the practice premises and the change in the use of the basement apartment could be interpreted as a declaration of withdrawal of the business assets. However, according to the tax authorities, when declaring income from renting and leasing, there is no withdrawal of a part of the property even if the taxpayer does not draw the obvious tax consequences from a withdrawal (realization of profit). Realization of profit means that the taxpayer includes the profit/loss from the withdrawal in the profit determination. This was not done in the income tax return for 2004. Therefore, according to the administration's view presented above, this part of the property remains in the business assets of the practice, even if the surplus from renting the apartment was declared as income from renting and leasing in the period from 2005 onwards.
And what would be the best course of action considering that the practice was enlarged from 17 sqm to approximately 40 sqm on the ground floor from 2011, and these 40 sqm would again be considered business assets on their own.
- Since the property part has actually always remained in the business assets, it can be used again for practice premises. The corresponding expenses can be deducted as business expenses in the profit calculation.
I hope that I could be of assistance to you.
If there is still uncertainty, please feel free to use the follow-up function.
Best regards,
Dr. Yanqiong Bolik
Tax advisor
Bildstöckle 6, 70567 Stuttgart
Tel: +49 (0)711 / 2132 1815
Email: info@zdbz.de
www.steuerberatung.zdbz.de
