The Significance of the Expanded Property Tax Deduction for Businesses
The extended property deduction is of great importance to businesses, particularly real estate companies, as it has a significant impact on business tax.
What is the extended property deduction?
The extended real estate deduction allows for the most extensive exemption from trade tax for real estate companies. This means that these companies are exempt from trade tax in many cases, provided there is no commercial real estate trading involved.
The extended real estate deduction allows companies that exclusively hold and manage their own real estate to reduce their trade tax. However, this provision does not apply if commercial real estate trading is involved.
Distinction Between Renting and Trading in Real Estate
An important distinction lies between the mere leasing of real estate and the trading of real estate. The Münster Fiscal Court has clarified that the mere leasing of real estate does not constitute proximity to trading in it. Therefore, the presumption of an intent to sell does not apply to leasing companies.
Impact on Companies in the Real Estate Sector
For companies in the real estate sector, this means that when selling real estate, they must carefully examine whether such sales could be classified as commercial real estate trading. Particularly relevant is the three-property limit, which serves as an indicator of commercial real estate trading.
It refers to a guideline regarding the assessment of real estate activities in relation to commercial real estate trading. It states that the sale of more than three properties within a 5-year period may be an indication of commercial real estate trading. This threshold serves as a guideline for tax authorities to determine whether a company in the real estate sector is actually engaged in real estate trading. However, it should be noted that the overall circumstances of each case must be taken into account.
Implications for Practice
The extended property deduction means that companies in the real estate sector are often unsure whether their sales will be classified as commercial real estate trading. It is important for companies to carefully review their sales activities and, if necessary, be able to demonstrate that no commercial real estate trading is taking place. This applies in particular to cases where sales outside the five-year period are attributable to unforeseeable events.
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