Extended property reduction - Berlin-Brandenburg tax court - 8 K 8179/22 judgment of November 5, 2024

FG Cottbus: Measures that prepare a letting do not constitute property management and use, even after the conclusion of the property purchase agreement!

Preliminary decision

In the case underlying the decision, a GmbH (plaintiff) founded in 2018 had acquired several properties before the beginning of 2019. Almost immediately after the acquisition, various measures were taken to prepare for the letting of the property before the beneficial ownership of the property was transferred to the GmbH in mid-2019.

The plaintiff applied for the extended reduction for the rental income for the 2019 tax period, but the competent tax office refused the reduction when determining the trade income.

Ruling FG Cottbus

The Cottbus tax court confirmed the disputed decision because the plaintiff had not complied with the so-called exclusivity requirement in terms of time. The plaintiff's activities did not consist of the continuous management and use of the property. Preparatory measures did not fulfill this requirement, and the extended property reduction requires that the real estate company is also exclusively active in the management and use of real estate in terms of time. This activity must be carried out during the entire assessment period.

Assessment

The Cottbus tax court's view is restrictive and does not appear compelling, as the preparatory activities are prompted by the intended letting. Nevertheless, structuring consultants would advise against the chosen approach if the extended property deduction is to be claimed. It remains to be seen how the BFH will decide in the permitted appeal if the plaintiff makes use of this option.

However, it remains to be seen whether the dispute should be decided in connection with the preparatory measures. This is because the plaintiff had partially resold the acquired properties shortly after acquisition. If this were to be regarded as commercial property trading, the extended reduction would be excluded. The tax court only pointed this out, but did not have to decide this question. However, if the preparatory activities were to be treated in the same way as the letting itself, the question of commercial property trading could arise. However, this could also be irrelevant if, in the context of Section 9 no. 1 sentence 2 GewStG, the business asset affiliation of the real estate at the beginning of the assessment period (Section 20 (para. 1) sentence 2 GewStDV) would have to be examined. The BFH left this open in 2021 (III R 7/19). The plaintiff in the case in question is therefore not entitled to the simple property reduction.

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