Conversion of business assets into personal assets
March 11, 2018 | 75,00 EUR | answered by Oliver Burchardt
Dear Sir or Madam,
In 2004 I purchased a house for a price of 400,000 euros. The house was divided into two residential units, a practice part on the upper floor and a residential part on the ground floor (the value for the upper apartment was estimated at 60% of the purchase price, and the value for the lower apartment at 40%). I took out a loan of 240,000 euros for the practice part and a loan of 80,000 euros for the residential part.
In 2008, I paid off both loans early and fully repaid the house. The building depreciation for the upper part, the practice, was 4,500 euros per year (from 2004 onwards). The book value for the practice part (including the share of the land) is still approximately 190,000 euros today (note: land value 115,000 euros, the rest building share). According to a real estate agent, the current market value of the entire property is 550,000 euros. I would like to know how much the possible tax would be when selling the practice and converting it from business assets to personal assets. Can you also explain how this tax is generally calculated, and how it would specifically apply in my case?
I also have the following questions: Does the current sale value correspond to the value that is relevant for tax assessment? Could taxation be avoided by renting out the practice rooms to the new practice owner or by renting out the practice rooms to a private tenant?
Perhaps you could also make a suggestion on how I can minimize the tax as much as possible.
Thank you in advance.
Kind regards,
Dear inquirer,
Thank you for your inquiry, which I am happy to answer within the scope of an initial consultation.
I am unable to provide a concrete tax calculation based solely on the information provided, as in addition to the selling price of the building, the remaining practice value, the ongoing income from the practice, and potentially other sources of income must also be taken into account. It must also be determined whether any exemptions, such as those under § 16 para. 4 EStG, apply in your case. A precise tax calculation therefore requires a comprehensive analysis of your tax situation, which an online forum cannot provide.
In your case, the taxable portion of the selling price is calculated as the difference between the book value (190 TEUR) and the proportional selling price, which is likely 60% of 550 TEUR, or 330 TEUR. Therefore, from the sale of the practice premises alone, you already have a taxable profit of 140 TEUR. Very roughly, this would result in taxes of around 44 TEUR. Please note that this is a very rough approximation and represents the lower end of possible tax payments.
I would advise against renting out the premises, as this would ultimately increase the tax burden. Discontinuing your practice also means transferring the premises to your private assets, which has the same tax implications as a sale. Additionally, in this case, you would need to pay taxes on the rental income, resulting in double taxation.
Suggestions for minimizing the tax burden are not possible in a reputable manner without knowledge of your personal and professional circumstances.
I recommend consulting with a local tax advisor on how to optimally structure the discontinuation of your practice in terms of taxes. There are certainly solutions available, but they must consider all circumstances. In my opinion, personal contact is essential for this.
Best regards,
Oliver Burchardt
Tax Advisor
