Capital gain, profit from sale
December 16, 2012 | 45,00 EUR | answered by StB Steffen Becker
More than 10 years ago, I bought 2 small apartment buildings. In addition, there are 3 condominiums. Also, my private residence with a large plot. None of these properties have undergone major renovations or expansions in the last 10 years, only minor repairs.
Now, I intend to sell some properties over the next 3 years (approximately): 2 apartment buildings + 2 condominiums from the above-mentioned inventory. I also plan to sell the owner-occupied residence, but I would like to separate a large portion of the plot.
This portion of land will be newly built with a residential building containing 4 apartments, and then rented out.
Furthermore, in 2012, I purchased a condominium that is intended for personal use. I am not in the construction industry.
Which sales are subject to income tax? Thank you.
Dear inquirer,
Thank you for your inquiry. I will answer this within the scope of an initial consultation based on the information you provided. Missing or incorrect information can affect the legal outcome.
In your case, the BMF letter of 26.03.2004 - IV A 6 - S 2240 - 46/04 provides clarification:
When private individuals sell properties, it is essential to consider the duration of use before sale and the number of properties sold in determining whether a commercial real estate trade exists. In cases where a commercial real estate trade is ruled out, it should be examined whether the profit from the sale is subject to taxation according to § 23 EStG.
Exceeding the "Three-Object Limit" is considered an indication of a commercial real estate trade. The sale of more than three properties within a five-year period is generally considered commercial. The sale of more than three properties acquired or constructed with conditional intent within this period generally leads to commerciality of all - including the first three - property sales, subject to the other conditions (§ 15 Abs. 2 EStG). The five-year limit is not rigid. A commercial real estate trade may exist, for example, with a higher number of sales after this period or in cases of primary professional activity in the construction sector.
Objects within the "Three-Object Limit" are only those with a close temporal connection between construction, acquisition, or modernization and sale. If such a close temporal connection is not present, objects can only be counted up to a ten-year limit if additional circumstances justify the conclusion that there was an intent to sell at the time of construction, acquisition, or modernization. Additional circumstances include, for example, a taxpayer in the industry selling fewer than four properties within five years of building a property, but then systematically selling more properties in a relatively short period afterwards.
Regarding the exceeding of the "Three-Object Limit":
Objects within the "Three-Object Limit" can be any type of property. The size, value, or type of use of each object is not relevant. Whether the properties are developed or undeveloped, or whether the taxpayer constructed or acquired the objects in a developed state, does not matter.
Every legally independent residential property that is independently usable and sellable counts as an object within the "Three-Object Limit," even if multiple properties are combined into one after the contract is signed. The same applies to properties where the sale failed at the time of contract completion.
Excluded are properties used for personal residential purposes. Developed properties used for personal residential purposes generally fall under necessary private assets. However, if a property intended for sale is temporarily used for personal residential purposes, different rules apply. If the property was used personally for less than five years and the seller can demonstrate a long-term intention for personal use, the property is not included in the calculation.
Despite exceeding the "Three-Object Limit," a commercial real estate trade may not be assumed if there are clear indications against a pre-existing intent to sell based on specific circumstances provided by the taxpayer. For example, a long-term rental of a residential property for over five years by the seller could indicate no initial intent to sell. However, specific reasons for sales (such as sudden illness, financing difficulties, poor marketability, divorce, discovering defects, unforeseen emergencies) are generally not sufficient to negate the assumed conditional intent to sell based on the time elapsed between relevant activities.
In your case, the key point is the intent to sell: Based on the information you provided, and assuming all 4 properties to be sold have been in your possession for longer than 10 years and have been rented out long-term, there may be no tax liability due to no intent to sell at the time of acquisition. The personally occupied residential property is not included under the above conditions.
I hope I have been able to provide a brief overview of the tax situation. However, to make a comprehensive and more specific statement, detailed information about your personal circumstances will be necessary.
Kind regards,
Steffen Becker
-Tax Advisor-
stb-becker@arcor.de
