Sale of a self-occupied property with obligation to demolish and divide before sale.
April 15, 2013 | 60,00 EUR | answered by StB Patrick Färber
Sale of a self-occupied property - obligation to demolish and divide before sale:
I am the owner of a single-family house that has been exclusively self-occupied for many years and is currently still being used as such on a large plot of land. I would like to sell the property tax-free in accordance with § 23 para. 1 no. 1 sentence 3 EStG (self-occupied property). The real estate agents were unable to find a single buyer, but instead found three independent buyers, each of whom would purchase a portion of the land. The notarial sales contract would include the obligation on my part to vacate the single-family house within about six months and to remove and dispose of it before the handover (demolition). Would this still fall under § 23 para. 1 no. 1 sentence 3 EStG?
The property is to be divided into three plots before the sale, or the notarial purchase contract would include three areas to be measured and the obligation to have these areas measured before the handover. Would the sale of three plots or the preparation for the division into three plots exceed the three-property limit for commercial property dealers and thus make the sale subject to income and business tax? Would § 23 para. 1 no. 1 sentence 3 EStG still be applicable?
If the division or intention to divide poses a problem, how can this be resolved?
Dear inquirer,
Your case and question are very interesting, and it seems to me that you already have a good amount of detailed knowledge. In principle, you have raised 2 questions:
1) Sale of the "property" after demolition = tax-free under § 23?
§ 23 para. 1 sentence 1 no. 1 sentence 3 focuses on an asset (in contrast to no. 2), so the consideration is not based on the Civil Code, where the land and building are essentially considered as one object. Therefore, the self-used BUILDING is favored. The (separately assessable) land is considered as part of the building if it is necessary and customary, essentially the area under the house plus a little bit around it. A purely undeveloped piece of land is not favored under § 23 .. sentence 3. Even if there are larger areas of land around the SFH, they are not covered by § 23 .. sentence 3. What about the open space around it? If you have the property itself as the subject of sale, on which you even demolish the "favored" building beforehand, in my opinion, you do NOT qualify for tax exemption under § 23 for self-used residential property. The tax authorities even explicitly mention parceling in the 2000 BMF letter and do not allow the application of § 23 EStG in this regard.
2) Prepared partitioning or sale of 3 parcels as a commercial land trade?
Handling the "commercial land trade" is difficult as it is heavily influenced and developed by case law. However, in your case, it seems to me that there is NO commercial land trade:
- More than 3 objects must be sold
- These objects must have been acquired within the last 5 years
- The 3-object rule is only to be considered as an indication
- Especially with objects that the seller has used for many years (tax authorities: at least 10 years, tax courts at least 9 years), private asset management is always assumed. Based on your description, I believe that you do not fall within the scope of the commercial land trade in terms of the number of objects or the timeframe (5 years acquisition, long self-use). It seems to me that it only comes down to not applying the tax exemption under § 23 .. sentence 3. The sales proceeds minus acquisition costs (possibly of the predecessor) form the disposal gain (if > 600 EUR). I also do not see an alternative from afar if you cannot find a buyer for the building with the land. Perhaps you could persuade someone to acquire a partial area with the building? You could include the demolition costs, for example. I hope I could help you!
Best regards,
Patrick Färber
Tax consultant
patrickfaerber@arcor.de
