Introduction to Commercial Real Estate Trading: Understanding the 3-Object Boundary and Relevant Income Tax Regulations

1. Introduction to Commercial Property Trading

Commercial real estate trading is always an explosive topic in connection with real estate transactions, which is of great importance for both real estate owners and tax advisors.

This article examines the criteria that lead to the acceptance of a commercial real estate transaction, in particular the so-called 3-property limit, and explains the relevant standards in the Income Tax Act (EStG). In addition, the fundamental decision of the Federal Fiscal Court (BFH) on this topic is also briefly discussed.

2. When does a commercial real estate transaction exist?

Commercial real estate trading is assumed when a person or company engages in the buying and selling of real estate with the intention of making a profit and this activity has a certain sustainability. This means that the activity is carried out over a longer period of time and with a certain regularity.

a) The 3-object boundary

A central aspect when assessing whether commercial real estate is involved is the so-called 3-property boundary. This rule states that a commercial real estate transaction is assumed if more than three properties are acquired and resold within a five-year period. Both plots of land and rights equivalent to plots of land count.

b) Requirements for triggering the 3-object boundary

However, the 3-object boundary is not absolute. It only applies if other conditions are met:

1. The properties were acquired or developed in order to sell them at a profit.
2. There is a temporal connection between purchase and sale.
3. There is an economic connection between purchase and sale.

3. The essential norms and regulations in the Income Tax Act for the 3-object boundary

The relevant norms in the Income Tax Act are Section 15 (2) and Section 22 No. 1. According to Section 15 (2) EStG, any independent, sustainable activity that is undertaken with the intention of making a profit and is considered a participation in the general business is considered a commercial enterprise represents economic traffic. According to § 22 No. 1 EStG, income from letting and leasing is basically income from assets.

4. The fundamental decision of the Federal Fiscal Court (BFH)

The fundamental decision of the BFH on commercial real estate trading and the 3-object boundary dates back to 1995 (BFH, judgment of October 10, 1995, IX R 68/92). The BFH decided that exceeding the 3-property limit is a strong indication of commercial real estate trading, but is not the sole criterion.

It is important to note that the assessment of whether there is a commercial real estate transaction is always a case-by-case decision. In addition to the 3-object limit, other factors also play a role, such as the intention of the taxpayer, the type of object and the duration of ownership. It is therefore advisable to consult a tax advisor or lawyer if you are unsure.

The fundamental decision of the BFH and the standards in the Income Tax Act form the legal basis for the assessment of commercial real estate trading. They offer orientation, but cannot fully reflect the complexity of the individual case. It is therefore important to keep up to date with the latest case law and changes in the law.

All in all, commercial real estate trading is a complex and dynamic field that poses a challenge for real estate investors, real estate owners as well as for tax consultants and lawyers. With the right understanding of the legal framework and a careful analysis of individual cases, however, risks can be minimized and opportunities optimally used.

This article does not constitute concrete and individual legal advice, but only provides a rough initial overview of the very complex legal matter described. You can only obtain legal certainty for your specific case constellation through coordinated examination and advice from a competent lawyer.

I am happy to be at your disposal as a lawyer and specialist lawyer for a legal assessment and assessment of your case and represent your interests assertively and resolutely. the tax authority. Feel free to contact me by phone or write to me.

I advise nationwide on site or via Zoom as a specialist lawyer in the areas of corporate law, tax law and insolvency law, including in the cities and metropolitan areas around Stuttgart, Heilbronn, Karlsruhe, Freiburg, Ulm, Augsburg, Munich, Frankfurt, Wiesbaden, Saarbrücken, Kaiserslautern, Bonn, Wuppertal, Duisburg, Nuremberg, Munster, Saarbrücken, Düsseldorf, Cologne, Dortmund, Hanover, Kassel, Leipzig, Dresden, Bremen, Hamburg and Berlin.

#3 object boundary #commercial real estate trading #asset management #intent to make a profit #income from commercial operations #§15 EStG #real estate sale #real estate sale #real estate trading #real estate trading #tax dispute #objection #objection proceedings #financial court #financial court proceedings #tax law #specialist lawyercorporate law #specialist lawyertax law #lawyer #lawyer #specialist #specialist lawyer